Governor of the Bank of Israel Prof. Amir Yaron participated in a conference held to mark his winning the Stephen Ross Prize. The conference was held at MIT in Boston. The Governor spoke as the keynote speaker and as the winner of the prize, together with Duke University Prof. Ravi Bansal. In his speech at the conference, Governor Yaron dealt with the issue of uncertainty in economics, the ability for research to identify and quantify it in order to make policy decisions, and its impact on capital markets, economic growth, and fiscal issues, including topical ones such as Brexit and the trade war.

The $100,000 Stephen A. Ross Prize in Financial Economics, awarded by the Foundation for Advancement of Research in Financial Economics (FARFE), was instituted in memory of Stephen Ross, one of the world’s leading financial economists. Some of the prize recipients have gone on to win the Nobel Prize in Economics. The Ross Prize is awarded for groundbreaking research that makes a significant contribution in the Foundation’s area of activity.

Referring to the research and the award of the prize, 2013 Nobel Prize in economics winner Professor Lars Hansen said, “This truly innovative paper uses recursive utility in a creative way to show how investors’ concern about long-term macroeconomic uncertainty can have a big impact on even short term risk return tradeoffs observed in financial markets. It added an intriguing new perspective to asset pricing theory”.


The innovative research by Governor of the Bank of Israel Prof. Amir Yaron (published when he was a researcher at the University of Pennsylvania) and Prof. Ba​nsal was published in the prestigious Journal of Finance. In the paper, the researchers found a solution to the “Equity Premium Puzzle”, which refers to the higher average annual return for equities, compared with fixed income securities, as well as other asset pricing anomalies found in the financial literature. The paper, “Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles”, found and proved that the differences in returns on equities and on bonds are also caused by differences in the approach to macroeconomic long-run risks to the growth of the economy. The Prize Committee noted that Bansal and Yaron “make a fundamental contribution to central questions in asset pricing: what drives asset price movements and what determines expected returns on financial assets”.


The paper demonstrates that both asset price volatility and expected returns are highly sensitive to the properties of persistent fluctuations in economic fundamentals, particularly the growth rate and uncertainty. The authors term these fluctuations “long run risk.” This paper has broadly influenced how expected returns and risk are modeled not only in the asset pricing, but also in a diverse set of areas in both finance and macroeconomics.


Since its publication, the paper has been cited numerous times in research papers, scientific publications, and economic papers, including a Nobel Committee document in 2013. Among other things, this paper has helped in understanding the reality that led to the outbreak of the global financial breakdown in 2008, and laid a solid scientific groundwork for incorporating various influencing factors on public saving and consumption. These factors include concerns of global crises such as trade wars, economic policy changes due to changes in the political arena, and global warming.