We show that a business-cycle component of consumption growth (dubbed business-cycle consumption) with cycles between 2 … and 4 years is effective in explaining the differences in risk premia across alternative test assets, including recently … aggregation of returns and consumption growth over suitable horizons. Consistent with our formalization, we show that the factor …

's expected return is determined by its equilibrium risk to consumption. Rather that measure the risk of a portfolio by the … cross-sectional returns -- we measure the risk of a portfolio by its ultimate consumption risk defined as the covariance of … consumption risk has little predictive power for explaining the pattern of average returns across the Fama and French (25 …