type="main" <title type="main">ABSTRACT</title> <p>How important are volatility fluctuations for asset prices and the macroeconomy? We find that an increase in macroeconomic volatility is associated with an increase in discount rates and a decline in consumption. We develop a framework in which cash flow, discount rate, and...</p>

The long-run risks (LRR) asset pricing model emphasizes the role of low-frequency movements in expected growth and economic uncertainty, along with investor preferences for early resolution of uncertainty, as an important economic-channel that determines asset prices. In this paper, we estimate...

We show that economic restrictions of cointegration between asset cash flows and aggregate consumption have important implications for return dynamics and optimal portfolio rules, particularly at long investment horizons. When cash flows and consumption share a common stochastic trend (i.e., are...

In this paper we develop an economic asset pricing framework that identifies three key sources of risk that underlie the risk and return tradeoff in the economy: news to cashflows, news to expected returns, and news to aggregate volatility. A novel contribution of this paper is the inclusion of...

We provide an empirical evaluation of the forward-looking long-run risks (LRR) model and highlight model differences with the backward-looking habit based asset pricing model. We feature three key results: (i) Consistent with the LRR model, there is considerable evidence in the data of...

We show that volatility movements have first-order implications for consumption dynamics and asset prices. Volatility news affects the stochastic discount factor and carries a separate risk premium. In the data, volatility risks are persistent and are strongly correlated with discount-rate news....

We argue that the cointegrating relation between dividends and consumption, a measure of long-run consumption risks, is a key determinant of risk premia at all investment horizons. As the investment horizon increases, transitory risks disappear, and the asset's beta is dominated by long-run...