The core of my research interests is in the area of asset pricing. Specifically, I investigate what determines the expected returns of assets and what drives asset price fluctuations. I mostly work with theoretical models of general equilibrium, with and without production, and in several of my investigations I examine the impact of investor heterogeneity on asset prices as well as trading.
Technology choice allows for substitution of production across states of nature and depends on state-dependent risk aversion. In equilibrium, endogenous technology choice can counter a persistent negative productivity shock with an increase in investment. An increase in risk aversion intensifies transformation across states, which directly leads to higher investment volatility. In our model and the data, the conditional volatility of investment correlates negatively with the price-dividend ratio and predicts excess stock market returns. In addition, the same mechanism generates predictability of consumption growth and produces fluctuations in the risk-free rate