Long-run risk models, a cornerstone in the macro-finance literature for their ability to capture key asset price … phenomena, are known to entail implausibly high levels of timing and risk premia. Our paper resolves this puzzle by considering … and the risk premium is 16 percent of lifetime consumption. These values are about a third of the previously implied …

risk aversion and the intertemporal elasticity of substitution. The three-way separation allows the model to further … account for the variance premium puzzle, besides the puzzles of the equity premium, the risk-free rate, and the return … predictability. Specifically, the model matches reasonably well key asset pricing moments with risk aversion under 5. By calibration …