Early resolution of uncertainty and asset prices

We characterize the properties of the term structures of the risk-free interest rates and of the equity premia when the representative agent has Epstein-Zin-Weil preferences. We consider a simple 3-date model with various forms of predictability of consumption growth. When risk aversion is larger than the aversion to consumption fluctuations, the persistency of the first-period shock on consumption reduces the short interest rate but raises the long interest rate. It raises the short equity premium, but it reduces the long equity premium.