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 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....

How important are volatility fluctuations for asset prices and the macroeconomy? We find that a rise in macroeconomic volatility is associated with a rise in discount rates and a decline in consumption. To study the impact of volatility we provide a framework in which cashflow, discount-rate,...

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 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....