We show that bond factors, which predict future U.S. economic activity at business cycle horizons, are priced in the cross-section of U.S. stock returns. High book-to-market stocks have larger exposures to these bond factors than low book-to-market stocks, because their cash flows are more...

Value stocks have higher exposure to innovations in the nominal bond risk premium, which measures the markets' perception of cyclical variation in future output growth, than growth stocks. The ICAPM then predicts a value risk premium provided that good news about future output lowers the...

Low realizations of the bond factors, typically at the onset of recessions, coincide with low value-minus-growth returns, low future dividend growth on value-minus-growth, and low future economic growth. This evidence supports the view that the business cycle is a priced state variable in stock...

We use a standard single-agent model to conduct a simple consumption growthaccounting exercise. Consumption growth is driven by news about current and expected future returns on the market portfolio. The market portfolio includes financial and human wealth. We impute the residual of consumption...

We use a standard single-agent model to conduct a simple consumption growth accounting exercise. Consumption growth is driven by news about current and expected future returns on the market portfolio. We impute the residual of consumption growth innovations that cannot be attributed to either...

We set up an exponentially affine stochastic discount factor model for bond yields and stock returns in order to estimate the prices of aggregate risk. We use the estimated risk prices to compute the no-arbitrage price of a claim to aggregate consumption. The price-dividend ratio of this claim...

We use a standard single-agent model to conduct a simple consumption growth accounting exercise. Consumption growth is driven by news about current and expected future returns on the market portfolio. The market portfolio includes financial and human wealth. We impute the residual of consumption...

The covariance of regional consumption varies cross-sectionally and over time. Household-level borrowing frictions can explain this aggregate phenomenon. Whenthe value of housing falls, loan collateral shrinks, borrowing (risk-sharing) declines,and the sensitivity of consumption to income...

In a model with housing collateral, the ratio of housing wealth to total wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, and increases the...

Time-variation in the degree of risk-sharing induced by changes in the value of housing collateral sheds new light on the consumption correlation puzzle. If debts can only be enforced to the extent that they are collateralized by housing wealth, a decrease in the value of housing collateral...