Thanks Sachin….great explanation.
However i have got this from CFAI material (R16) –still a bit confused with this…
“The linkages are consistent with asset-pricing theory, which predicts that the risk premium of an asset is related to the correlation of its payoffs with the marginal utility of consumption in future periods. Assets with low expected payoffs in periods of weak consumption (e.g., business cycle troughs) should bear higher risk premiums than assets with high expected payoffs in such periods. Because investors expect assets of the second type to provide good payoffs when their income may be depressed, they should be willing to pay relatively high prices for them (implying lower risk premiums).”