LETTAU, MARTIN; WACHTER, JESSICA A. - In: Journal of Finance 62 (2007) 1, pp. 55-92
We propose a dynamic risk-based model that captures the value premium. Firms are modeled as long-lived assets distinguished by the timing of cash flows. The stochastic discount factor is specified so that shocks to aggregate dividends are priced, but shocks to the discount rate are not. The...