Rare Events and Long-Run Risks. Robert Barro, January 2016, Paper. "Rare events (RE) and long-run risks (LRR) are complementary elements for understanding asset-pricing patterns, including the average equity premium and the volatility of equity returns. We construct a model with RE (temporary and permanent parts) and LRR (including stochastic volatility) and estimate this model with long-term data on aggregate consumption for 42 economies. RE typically associates with major historical episodes, such as the world wars and the Great Depression and analogous country- specific events. LRR reflects gradual and evolving processes that influence long-run growth rates and volatility." Link