The Price of Uncertainty in the Term Structure of Equity and Treasury Yields

I propose a consumption-based asset pricing model in which the decision maker prices contingent cash flows realized at different future horizons and exposed to multiple shocks. The decision maker ignores the objective probability generating the data, and she evaluates a set of models that is twisted to include specific parametric alternatives. I characterize and measure how the market price of uncertainty contributes to the short and long-run valuations of cash flows. I propose a state-space with macroeconomic and aggregate financial variables that quantifies the (model) uncertainty premium in the term structure of U.S. Treasury yields and equity yields on the aggregate S&P 500 Index. My estimates replicate prominent features of the data