We structurally estimate an investment-based asset pricing model, where firms’ exposure to macroeconomic risk is unknown. Bayesian beliefs about this parameter are updated from firms’ and industry peers’ comovement between their productivity and consumption growth. The model implies that discount rates rise endogenously with the perceived risk exposure of firms, thereby depressing investment and valuation ratios. We test these predictions in the data and find strong support for them. In particular, we find that cross-sectional learning from peers is crucial in this context and alternative risk estimates, which ignore peer observations, do not predict firm variables. 

Conference presentations: 2019 City University of Hong Kong International Finance Conference, 2019 Wellington Finance Summit, 2020 Conference on Asia-Pacific Financial Markets, 2021 Frontier of Factors Investing Conference, 2021 Asian Finance Association Conference, 2022 Western Finance Association Conference, 2022 Econometric Society Australasian Meeting, 2022 Northern Finance Association, 2022 UT Dallas Fall Finance Conference

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