We propose a production-based general equilibrium model to study the link between timing of cash flows and expected returns, both in the cross-section of stocks and along the aggregate equity term structure. Our model incorporates long-run growth news with time-varying volatility and slow learning about the exposure that firms have with respect to these shocks. Our framework provides a unified explanation of the stylized features of the slope of the term structure of equity returns, its variations over the business cycle, and the negative relationship between cash-flow duration and expected returns in the cross-section of bookto-market-sorted portfolios

News shocks and the production-based term structure of equity returns

Croce, Mariano M.
;
LI, KAI
2018

Abstract

We propose a production-based general equilibrium model to study the link between timing of cash flows and expected returns, both in the cross-section of stocks and along the aggregate equity term structure. Our model incorporates long-run growth news with time-varying volatility and slow learning about the exposure that firms have with respect to these shocks. Our framework provides a unified explanation of the stylized features of the slope of the term structure of equity returns, its variations over the business cycle, and the negative relationship between cash-flow duration and expected returns in the cross-section of bookto-market-sorted portfolios
2018
Ai, Hengjie; Croce, Mariano M.; Diercks, Anthony M; Li, Kai
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11565/4011461
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