We introduce heterogeneity in the pricing of aggregate risks of various persistence into a dynamic corporate finance model with financing frictions. We show that if long-term (persistent) shocks have a higher market price than short-term (temporary) shocks, firms shorten the horizon of corporate...

Leading asset pricing models are inconsistent with the recent empirical evidence documenting downward sloping term structures of equity risk and premia. This paper shows that a simple general equilibrium model can accommodate such stylized facts as long as dividends endogenously obtain from a...

Recent empirical findings document downward-sloping term structures of equity return volatility and risk premia. An equilibrium model with rare disasters followed by recoveries helps reconcile theory with empirical observations. Indeed, recoveries outweigh the upward-sloping effect of...