Events

Prof. Benjamin M. Hébert
Associate Professor of Finance
Graduate School of Business
Stanford University

We use equity returns to construct a time-varying measure of the interest rate that we call the zero-beta rate: the expected return of a stock portfo-lio orthogonal to the stochastic discount factor. The zero-beta rate is high and volatile. In contrast to safe rates, the zero-beta rate fits the aggregate consump-tion Euler equation remarkably well, both unconditionally and conditional on monetary shocks, and can explain the level and volatility of asset prices. We claim that the zero-beta rate is the correct intertemporal price.