tradeoff between market and reinvestment risk explains this pattern. Intuitively, while long-term dividend claims are highly … exposed to market risk, they are also good hedges for reinvestment risk because dividend prices rise as expected returns … long maturities, inducing relatively low risk premia on long-term dividend claims. The model is also consistent with the …

rate, and the ex-post volatilities of the market return, real risk free rate, and the price-dividend ratio. As in the data …We model dividend and consumption growth rates as containing a small long-run predictable component and economic … asset markets phenomena. In particular, we show that the model can justify the observed equity premium, the low risk free …