This paper documents a significant risk premium for financial intermediation risk in the cross section of equity returns. Firms that borrow from highly levered financial intermediaries have on average 4% higher expected returns relative to firms with low-leverage lenders. This difference cannot...

We study the role of information in asset pricing models with long-run cash flow risk. When investors can distinguish short- from long-run consumption risks (full information), the model generates a sizable equity risk premium only if the equity term structure slopes up, contrary to the data. In...