We discuss the impact of different formulations of asset pricing models on the outcome of specification tests that are performed using excess returns. It is generally believed that when only excess returns are used for testing asset pricing models, the mean of the stochastic discount factor...

Real interest rates, long run risks and business cycles. Standard theoretical model under power utility preferences generates time series for real yields and output that are not consistent with the cyclical properties of the macroeconomic data. In particular real interest rates of the model are...