The term structures of equity and interest rates ∗

  title={The term structures of equity and interest rates ∗},
  author={Martin Lettau},
This paper proposes a dynamic risk-based model capable of jointly explaining the term structure of interest rates, returns on the aggregate market, and the risk and return characteristics of value and growth stocks. Both the term structure of interest rates and returns on value and growth stocks convey information about how the representative investor values cash flows of different maturities. We model how the representative investor perceives risks of these cash flows by specifying a… CONTINUE READING
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