In this paper we have studied the ability of relatively standard equilibrium asset pricing models to explain two important empirical regularities of asset returns extensively documented in the literature: i) returns can be predicted by a set of macro variables; and ii) returns are very volatile....

In the last few years, the empirical literature has documented that existing correlations between national returns are higher than correlations between the national growth rates of fundamental variables. In this paper we study the ability of intertemporal asset pricing models to explain...