I evaluate whether the so-called long-run risk framework can jointly explain key features of both equity and bond markets as well as the interaction between asset prices and the macroeconomy. I find that shocks to expected consump-
tion growth and time-varying macroeconomic volatility can account for the level of risk premia and its variation over time in both markets. The results suggest a common set of macroeconomic risk factors operating in equity and bond
markets. I estimate the model using a simulation estimator which accounts for time-aggregation of consumption growth and utilizes a rich set of moment conditions.