Campbell, JohnGiglio, StefanoPolk, ChristopherTurley, Robert Staffan2017-10-162012Campbell, John Y., Stefano Giglio, Christopher Polk, and Robert Turley. 2017. An Intertemporal CAPM with Stochastic Volatility. Working paper.0898-2937http://nrs.harvard.edu/urn-3:HUL.InstRepos:34222818This paper extends the approximate closed-form intertemporal capital asset pricing model of Campbell (1993) to allow for stochastic volatility. The return on the aggregate stock market is modeled as one element of a vector autoregressive (VAR) system, and the volatility of all shocks to the VAR is another element of the system. Our estimates of this VAR reveal novel low-frequency movements in market volatility tied to the default spread. We show that growth stocks underperform value stocks because they hedge two types of deterioration in investment opportunities: declining expected stock returns, and increasing volatility.en-USICAPMtime-varying expected returnsstochastic volatilityvalue premiumResearch Paper or Report2014-04-222017-10-1610.3386/w18411