Essays on Asset Pricing

Generalized Disappointment Aversion and the Variance Term Structure Contrary to leading asset pricing theories, recent empirical evidence indicates that financial markets compensate short-term equity volatility risk. An equilibrium model with generalized disappointment aversion risk preferences and rare events reconciles the term structure of variance swap prices and returns, consistent with the data. In addition, a calibration explains the variance and skew risk premiums in equity returns and the implied volatility skew of index options while capturing salient moments of fundamentals, equity returns, and the risk-free rate. The key intuition for the results stems from endogenous variation in the probability of disappointing events in consumption growth. Parameter Learning in Production Economies We examine how parameter learning amplifies the impact of macroeconomic shocks on equity prices and quantities in a standard production economy where a representative agent has Epstein-Zin preferences. An investor observes technology shocks that follow a regime-switching process, but does not know the underlying model parameters governing the short-term and long-run perspectives of economic growth. We show that rational parameter learning endogenously generates long-run productivity and consumption risks that help..