Ravi Bansal and Amir Yaron present a general equilibrium model that explains key asset market phenomena, including the equity premium, low risk-free rate, and volatility of market returns. The model incorporates a small predictable component in dividend and consumption growth rates and time-varying volatility in growth rates. It uses Epstein and Zin preferences to separate risk aversion from the elasticity of substitution, allowing for a better fit to observed data. The model shows that news about growth rates significantly affects agents' perceptions of long-run expected growth rates and uncertainty, leading to a large equity risk premium, low risk-free interest rate, and high market volatility. The model also explains the observed relationship between dividend yields and returns, and the stochastic nature of market return volatility. Empirical results support the model's ability to replicate key asset market features, including the equity premium, risk-free rate, and volatility of market returns. The model's parameters are estimated to lie in a plausible range, and it accounts for the observed volatility in price-dividend ratios and the predictability of returns based on dividend yields. The model suggests that economic uncertainty risk is priced at about 1.2% per annum. The paper provides a detailed analysis of the model's implications for asset pricing and highlights the importance of time-varying volatility in growth rates in explaining asset market anomalies.Ravi Bansal and Amir Yaron present a general equilibrium model that explains key asset market phenomena, including the equity premium, low risk-free rate, and volatility of market returns. The model incorporates a small predictable component in dividend and consumption growth rates and time-varying volatility in growth rates. It uses Epstein and Zin preferences to separate risk aversion from the elasticity of substitution, allowing for a better fit to observed data. The model shows that news about growth rates significantly affects agents' perceptions of long-run expected growth rates and uncertainty, leading to a large equity risk premium, low risk-free interest rate, and high market volatility. The model also explains the observed relationship between dividend yields and returns, and the stochastic nature of market return volatility. Empirical results support the model's ability to replicate key asset market features, including the equity premium, risk-free rate, and volatility of market returns. The model's parameters are estimated to lie in a plausible range, and it accounts for the observed volatility in price-dividend ratios and the predictability of returns based on dividend yields. The model suggests that economic uncertainty risk is priced at about 1.2% per annum. The paper provides a detailed analysis of the model's implications for asset pricing and highlights the importance of time-varying volatility in growth rates in explaining asset market anomalies.