High Aversion to Stochastic Time Preference Shocks and Counterfactual Long-Run Risk in the Albuquerque et al., Valuation Risk Model

This paper was previously circulated under the titles “Assessing Valuation Risk: Theory and Empirical Evidence” and “Theoretical and Empirical Challenges to Valuation Risk Induced by Stochastic Time Preferences.” I thank Alex Chernyakov for collaboration on an earlier version of this paper, and I thank Rui Albuquerque, John Campbell, Josh Coval, Oliver de Groot, Jeremy Stein, Lauren Cohen, Larry Epstein, Stefano Giglio, Robin Greenwood, Thomas Maurer, David Scharfstein, Tomasz Strzalecki, Adi Sunderam, Harald Uhlig, Ivo Welch, an anonymous referee, and seminar participants at the University of Texas and the Financial Intermediation Research Society for helpful comments. Supplemental results can be found in an Internet Appendix at the author’s website.