02231cam a22002537 4500001000600000003000500006005001700011008004100028100001800069245012800087260006600215490004100281500001900322520114700341530006101488538007201549538003601621690011201657700001701769710004201786830007601828856003701904856003601941w8059NBER20160207201217.0160207s2000 mau||||fs|||| 000 0 eng d1 aBansal, Ravi.10aRisks for the Long Runh[electronic resource]:bA Potential Resolution of Asset Pricing Puzzles /cRavi Bansal, Amir Yaron. aCambridge, Mass.bNational Bureau of Economic Researchc2000.1 aNBER working paper seriesvno. w8059 aDecember 2000.3 aWe model dividend and consumption growth rates as containing a small long-run predictable component and economic uncertainty (i.e., growth rate volatility) as being time-varying. The magnitudes of the predictable variation and changing volatility in growth rates, as in the data, are quite small. These growth rate dynamics, for which we provide empirical support, in conjunction with plausible parameter configurations of the Epstein and Zin (1989) preferences can explain key observed asset markets phenomena. In particular, we show that the model can justify the observed equity premium, the low risk free rate, and the ex-post volatilities of the market return, real risk free rate, and the price-dividend ratio. As in the data, the model also implies that dividend yields predict returns and that market return volatility is stochastic. The main economic insight we capture is that news about growth rates significantly alter agent's perceptions regarding long run expected growth rates and growth rate uncertainty--in equilibrium, this leads to a large equity risk premium, low risk free interest rate, and large market volatility. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG12 - Asset Pricing • Trading Volume • Bond Interest Rates2Journal of Economic Literature class.1 aYaron, Amir.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w8059.4 uhttp://www.nber.org/papers/w805941uhttp://dx.doi.org/10.3386/w8059