Lecture
This lecture delves into asset pricing puzzles, exploring the Euler equation, portfolio optimization, and the implications of recursive utility models. It discusses the challenges in reconciling risk, return, and consumption dynamics, shedding light on the equity premium puzzle and the risk-free rate puzzle. The presentation also covers the Habit Formation model and the Long-Run Risk model, providing insights into heterogeneous agents and idiosyncratic labor income shocks. The lecture concludes with a critical analysis of various models' ability to explain anomalies in asset pricing and the limitations of current financial economics literature.