We evaluate the empirical support for a broad class of long run risk models using information in factors extracted through principal component analysis of the covariance matrix of log price dividend ratios of twenty five equity portfolios formed on Size and Book-to-Market. We identify two...

"We show that long run consumption risk models imply that the covariance matrix of the logarithm of price to dividend (P/D) ratios of stocks has a strict factor structure. Factor analysis of the P/D ratios of 25 portfolios formed by sorting stocks based on their size and book to market ratio...

We evaluate the empirical support for a broad class of long run risk models using information in factors extracted through principal component analysis of the covariance matrix of log price dividend ratios of twenty five equity portfolios formed on Size and Book-to-Market. We identify two...