  An asset pricing model using long-run capital share growth risk has recently
been found to successfully explain U.S. stock returns. Our paper adopts a
recursive preference utility framework to derive an heterogeneous asset pricing
model with capital share risks.While modeling capital share risks, we account
for the elevated consumption volatility of high income stockholders. Capital
risks have strong volatility effects in our recursive asset pricing model.
Empirical evidence is presented in which capital share growth is also a source
of risk for stock return volatility. We uncover contrasting unconditional and
conditional asset pricing evidence for capital share risks.
