Rare events (RE) and long-run risks (LRR) are complementary elements for understanding asset-pricing patterns, including the average equity premium and the volatility of equity returns. We construct a model with RE (temporary and permanent parts) and LRR (including stochastic volatility) and...

Rare events (RE) and long-run risks (LRR) are complementary approaches for characterizing macroeconomic variables and understanding asset pricing. We estimate a model with RE and LRR using long-term consumption data for 42 economies, identify these two types of risks simultaneously from the...

Rare events (RE) and long-run risks (LRR) are complementary elements for understanding asset-pricing patterns, including the average equity premium and the volatility of equity returns. We construct a model with RE (temporary and permanent parts) and LRR (including stochastic volatility) and...

Rare events (RE) and long-run risks (LRR) are complementary approaches for characterizing macroeconomic variables and for understanding asset pricing. We estimate a model with RE and LRR using long-term consumption data for 42 economies. RE typically associates with major historical episodes,...

The coefficient of relative risk aversion is a key parameter for analyses of behavior toward risk, but good estimates of this parameter do not exist. A promising place for reliable estimation is rare macroeconomic disasters, which have a major influence on the equity premium. The premium depends...