Discussion: Long-Run Risks and Risk Compensation in Equity Markets
1. SUMMARY
Bansal and his co-authors have produced a series of important and provocative papers that demonstrate how low-frequency risk can provide a justification for observed risk premia. Bansal summarizes this work and helps us understand the linkages between long-run risk in consumption and long-run risk in financial securities. Since he does such a nice job of explaining the economics of the approach, I focus on a few issues raised by Bansal’s work and by some of my own.
2. A LOW-FREQUENCY COMPONENT IN CONSUMPTION?
An important aspect of the model of Bansal and Yaron (2004) is the presence of a ...
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