We show that decomposing macroeconomic risks across horizon is key to uncover a tight link between risk premia and the real economy. Exposure in four-year returns to innovations in macroeconomic growth and volatility with a matching half-life of over four years is priced in a wide variety of...

The long-run risk model introduced by R.Bansal and A.Yaron (2004) assumes the existence of a small predictable component in consumption growth and an elasticity of intertemporal substitution of the representative agent larger than one for the substitution effect to dominate the income one....

This paper documents the existence of a slowly evolving trend in the dividend-price ratio, dp, determined by a demographic variable, MY: the middle-aged to young ratio. Deviations of the dividend-price ratio from this slowly evolving long-run component explain transitory but persistent...

We empirically document that serial uncertainty shocks are (1) common in the data and (2) have an increasingly stronger impact on the macroeconomy. In other words, a series of bad (positive) uncertainty shocks exacerbates the economic decline significantly. From a theoretical perspective, these...

Even after being orthogonalized with respect to the dividend-price ratio, the volatility of total factor productivity (TFP volatility) is shown to have similar long-run predictive ability for excess market returns as the dividend-price ratio itself. When seen through an asset pricing lens, this...

Uncertainty shocks are also risk premium shocks. With countercyclical risk aversion (RA), a positive shock to uncertainty increases risk and elevates RA as consumption growth falls. The combination of high RA and high uncertainty produces significant risk premia in bad times, which in turn...

We show that a business-cycle component of consumption growth (dubbed business-cycle consumption) with cycles between 2 and 4 years is effective in explaining the differences in risk premia across alternative test assets, including recently-proposed anomaly portfolios. We formalize the mapping...

We estimate agents' expectations about future fundamentals using a dynamic stochastic generalequilibrium model augmented with anticipated shocks. Accounting for agents' expectations atthe business cycle horizon results in aggregate risk factor innovations that have significant explanatory power...