One of the primary results of studying asymmetric information as part of information economics over the last 30 years has been a theory of markets for lemons - that is, markets for goods that are likely to be of poor quality. Unfortunately, it has proven difficult to directly test the lemons...

We present a tractable, linear model for the simultaneous pricing of stock and bond returns that incorporates stochastic risk aversion. In this model, analytic solutions for endogenous stock and bond prices and returns are readily calculated. After estimating the parameters of the model by GMM,...