We study whether stocks are riskier or safer in the long run from the perspective of Bayesian investors who employ the long-run risk, habit formation, or prospect theory models to form prior beliefs about return dynamics. Economic theory delivers important guidance for long-run investment...

We originate risk and uncertainty shock measures through textual analysis of corporate annual reports and assess their implications for corporate policies. Risk shocks are followed by long-lasting diminishing leverage, investment, employment, dividend payouts, stock repurchases, and increasing...

This paper proposes a structural approach to long-horizon asset allocation. In particular, the investor draws inferences about asset returns from a vector autoregression (VAR) with economic restrictions on the intercept, slope, and covariance matrix implied by the long-run risk model of Bansal...

This paper analyzes the asset pricing and portfolio implications of an important barrier to sustainable investing---uncertainty about the corporate ESG profile. In equilibrium, the market premium increases and demand for stocks declines under ESG uncertainty. In addition, the CAPM alpha and...

We develop a firm-level measure of uncertainty shocks through textual analysis of firm annual reports. We find that uncertainty shocks are followed by a short-term reduction in leverage and dividend payouts, while investment, employment, and cash holdings remain unchanged. In contrast,...

This paper develops a text-based downside risk measure using corporate annual reports and assesses its ability to forecast future corporate policies. The forward-looking measure dynamically captures adverse firm conditions evolving from economic fundamentals. When the measure is below its sample...