The Term Structures of Value and Growth Risk Premia
50 Pages Posted: 2 Jun 2020 Last revised: 14 Jan 2021
Date Written: June 1, 2020
This paper studies the impact of information processing and learning about economic fundamentals on the level and timing of risk premia in the cross-section of rms. Learning helps explain the level of the value premium, and why the term structure of risk premium is increasing for value firms and decreasing for growth rms. Moreover, learning yields an upward-sloping term structure of interest rates and a downward-sloping term structure of market risk premium, whereas the full information economy predicts the opposite shapes. Therefore, learning helps understand the level and timing
of expected returns observed in the cross-section of risky and risk-free assets.
Keywords: Asset Pricing, Information Acquisition, Term Structures, Risk Premia, Value and Growth Firms
JEL Classification: D51, D53, D83, G12
Suggested Citation: Suggested Citation