Inconsistencies in Interpreting the Atmospheric Neutrino Anomaly

We note a discrepancy between the value of R expected on the basis of the muon neutrino angular distribution and the value actually observed. The energy independence of $R$ leads to a fine tuning problem. This may be indicative of some unaccounted for new physics.Comment: 3 pages, 5 figure

Some Lessons from the Yield Curve

This paper reviews the literature on the relation between short- and long-term interest rates. It summarizes the mixed evidence on the expectations hypothesis of the term structure: when long rates are high relative to short rates, short rates tend to rise as implied by the expectations hypothesis, but long rates tend to fall which is contrary to the expectations hypothesis. The paper discusses the response of the U.S. bond market to shifts in monetary policy in the spring of 1994, and reviews the debate over the optimal maturity structure of the U.S. government debt.

Estimating the Equity Premium

To estimate the equity premium, it is helpful to use finance theory: not the old-fashioned theory that efficient markets imply a constant equity premium, but theory that restricts the time-series behavior of valuation ratios, and that links the cross-section of stock prices to the level of the equity premium. Under plausible conditions, valuation ratios such as the dividend-price ratio should not have trends or explosive behavior. This fact can be used to strengthen the evidence for predictability in stock returns. Steady-state valuation models are also useful predictors of stock returns given the high degree of persistence in valuation ratios and the difficulty of estimating free parameters in regression models for stock returns. A steady-state approach suggests that the world geometric average equity premium was almost 4% at the end of March 2007, implying a world arithmetic average equity premium somewhat above 5%. Both valuation ratios and the cross-section of stock prices imply that the equity premium fell considerably in the late 20th Century, but has risen modestly in the early years of the 21st Century.

By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior

We present a consumption-based model that explains the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. Our model has an i.i.d. consumption growth driving process, and adds a slow-moving external habit to the standard power utility function. The latter feature produces cyclical variation in risk aversion, and hence in the prices of risky assets. Our model also predicts many of the difficulties that beset the standard power utility model, including Euler equation rejections, no correlation between mean consumption growth and interest rates, very high estimates of risk aversion, and pricing errors that are larger than those of the static CAPM. Our model captures much of the history of stock prices, given only consumption data. Since our model captures the equity premium, it implies that fluctuations have important welfare costs. Unlike many habit-persistence models, our model does not necessarily produce cyclical variation in the risk free interest rate, nor does it produce an extremely skewed distribution or negative realizations of the marginal rate of substitution.

Baryomorphosis: Relating the Baryon Asymmetry to the "WIMP Miracle"

We present a generic framework, "baryomorphosis", which modifies the baryon asymmetry to be naturally of the order of a typical thermal relic WIMP density. We consider a simple scalar-based model to show how this is possible. This model introduces a sector in which a large initial baryon asymmetry is injected into particles ("annihilons") phi_B, \bar{phi}_B of mass ~ 100 GeV - 1 TeV. phi_B-\bar{phi}_B annihilations convert the initial phi_B, \bar{phi}_B asymmetry to a final asymmetry with a thermal relic WIMP-like density. This subsequently decays to a conventional baryon asymmetry whose magnitude is naturally related to the density of thermal relic WIMP dark matter. In this way the two coincidences of baryons and dark matter i.e. why their densities are similar to each other and why they are both similar to a WIMP thermal relic density (the "WIMP miracle"), may be understood. The model may be tested by the production of annihilons at colliders.Comment: 7 pages, 2 figures; Modified to address B washout issue. Higgs replaced by inert doublet, no mixing of annihilons. Version to be published in PRD, typos correcte

Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis

The permanent income hypothesis implies that people save because they rationally expect their labor income to decline; they save "for a rainy day". It follows that saving should be at least as good a predictor of declines in labor income as any other forecast that can be constructed from publicly available information.The paper tests this hitherto ignored implication of the permanent income hypothesis, using quarterly aggregate data for the period 1953-84 in the U.S. A vector autoregression for saving and changes in labor income is used to generate an unrestricted forecast of declines in labor income. In the VAR, saving Granger causes labor income changes as one would expect if the PIH is true. The mean of the unrestricted forecast is far from the mean of saving, but the dynamics of the two series are quite similar.The paper presents both formal test statistics and an informal evaluation of the "fit" of the permanent income hypothesis. By contrast with most of the recent literature, the results here are valid when income is nonstationary.