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

Hengjie Ai, Mariano Max Croce, Anthony M. Diercks, Kai Li

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)2423-2467
Number of pages45
JournalReview of Financial Studies
Issue number7
StatePublished - Jul 1 2018

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Publisher Copyright:
© The Author 2018.


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