Abstract
I study the long-run consumption risk reflected in news shock, a shock to expectations about future productivity. I identify news shock using a structural Vector Autoregression analysis. News shocks cause persistent future consumption growth and explain a large share of consumption movements in the long-run. Consistent with the long-run consumption risk hypothesis, I find that news shocks have a significantly positive risk premium in the cross section of asset returns. I also find that news shocks explain the size premium.
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