TY  - JOUR
AU  - Santos,Tano
AU  - Veronesi,Pietro
TI  - Cash-Flow Risk, Discount Risk, and the Value Premium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11816
PY  - 2005
Y2  - December 2005
UR  - http://www.nber.org/papers/w11816
L1  - http://www.nber.org/papers/w11816.pdf
N1  - Author contact info:
Tano Santos
Graduate School of Business
Columbia University
3022 Broadway, Uris Hall 414
New York, NY  10027
Tel: 212/854-0489
Fax: 212/316-9180
E-Mail: js1786@columbia.edu

Pietro Veronesi
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL  60637
Tel: 773/702-6348
Fax: 773/702-0458
E-Mail: pietro.veronesi@chicagobooth.edu
AB  - A habit persistence, general equilibrium model with multiple assets matches both the time series properties of the market portfolio and the cross-sectional predictability of returns on price sorted portfolios, the value premium. Consistent with empirical evidence, the model shows that (a) value stocks are those with higher cash-flow risk; (b) the size of the value premium is larger in %u201Cbad times,%u201D due to time variation in risk preferences; (c) the unconditional CAPM fails, because of general equilibrium restrictions on the market portfolio. The dynamic nature of the value premium rationalizes why the conditional CAPM and a Fama and French (1993) HML factor outperform the unconditional CAPM.
ER  -