A simple general equilibrium production economy matches moments of the value premium and equity premium. Value firms have low productivity, but will eventually produce high cash flows. The present value of these temporally distant cash flows is especially sensitive to equity premium movements....

This chapter reviews the behavior of financial asset prices in relation to consumption. The chapter lists some important stylized facts that characterize U.S. data, and relates them to recent developments in equilibrium asset pricing theory. Data from other countries are examined to see which...