Research

The focus of our research is on Asset Pricing. Assets are characterized by the fact that they provide their owners with a positive utility in the future, usually in the form of consumption. Examples include real estate, cars, art, education, vacation entitlements, forests, stocks, bonds, insurances and much more. Asset pricing deals with the question of how individuals value claims to future consumption, that means how prices of such assets are formed.

Capital markets offer an optimal environment for answering this question because assets traded on financial markets provide objectively quantifiable monetary cash flows on the one hand and are relatively frictionless on the other, which means that prices adapt to changing conditions frequently. We therefore observe realized (ex ante uncertain) cash flows and prices of financial assets.

Asset Pricing Theory develops hypotheses on the relationship between these two variables. In particular, it deals with how market participants assess risks and how their behavior influences prices. Risks of individual households (such as the risk of a car accident) are less relevant here, since such risks can typically be shared (and thus insured) with other market participants. Macroeconomic risks are more relevant, since they are difficult to insure in the aggregate.

In Empirical Asset Pricing, the hypotheses can then be systematically tested using capital market data. Our research combines theory and empirical analyses. We specifically examine the influence of macroeconomic variables on asset prices and the decision-making behavior of market participants under uncertainty.

To learn more about Julian Thimme's research, please click here.