TY  - JOUR
AU  - Hansen,Lars Peter
AU  - Heaton,John
AU  - Li,Nan
TI  - Consumption Strikes Back?: Measuring Long-Run Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11476
PY  - 2005
Y2  - July 2005
UR  - http://www.nber.org/papers/w11476
L1  - http://www.nber.org/papers/w11476.pdf
N1  - Author contact info:
Lars P. Hansen
Department of Economics
The University of Chicago
1126 East 59th Street
Chicago, IL 60637
Tel: 773/702-8170
Fax: 773/702-8490
E-Mail: lhansen@uchicago.edu

John C. Heaton
Booth School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-7130
Fax: 773/702-0455
E-Mail: john.heaton@ChicagoBooth.edu

Nan Li
403 Arps Hall
1945 N. High Street
Columbus, OH 43210
E-Mail: li.854@osu.edu
M2  - featured in NBER digest on 2005-07-11
AB  - We characterize and measure a long-run risk return tradeoff for the valuation of financial cash flows that are exposed to fluctuations in macroeconomic growth.  This tradeoff features components of financial cash flows that are only realized far into the future but are still reflected in current asset values.  We use the recursive utility model with empirical inputs from vector autoregressions to quantify this relationship; and we study the long-run risk differences in aggregate securities and in portfolios constructed based on the ratio of book equity to market equity.  Finally, we explore the resulting measurement challenges and the implied sensitivity to alternative specifications of stochastic growth.
ER  -