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.
Original language | English (US) |
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Pages (from-to) | 2423-2467 |
Number of pages | 45 |
Journal | Review of Financial Studies |
Volume | 31 |
Issue number | 7 |
DOIs | |
State | Published - Jul 1 2018 |
Bibliographical note
Publisher Copyright:© The Author 2018.