This chapter reviews the behavior of financial asset prices in relation to consumption. The chapter lists some important stylized facts that characterize U.S. data, and relates them to recent developments in equilibrium asset pricing theory. Data from other countries are examined to see which...

Analyzing cross sectional determinants of fund flows, this study finds evidence that investors' risk aversion is time-varying. In particular, the periods over which the increases in risk aversion are observed are associated with contemporaneously low market returns, suggesting that increases in...

We show that in a consumption-based asset-pricing model with hyperbolic discounting leading to dynamically inconsistent time preferences value premium increases nonlin-early with the degree of discounting and thus affects cross section of returns. To test our model empirically, we relate the...