This article investigates the impact of political uncertainty on contractual lending terms using a large sample of syndicated loans and a within-firm estimation approach to achieve identification. Firms pay 7 basis points (bps) more on loans originated when their lenders are undergoing an election relative to when their lenders are not undergoing an election. Lenders from less financially developed countries are more likely to pass political uncertainty costs to borrowers. Consistent with electoral uncertainty driving this premium, the most contested elections have the largest impact (17 bps). Overall, political uncertainty leads to a tangible increase in firms’ financing costs.

We develop an intertemporal asset pricing model where cash-flow news, discount-rate news, and their second moments are priced by the market. This model generalizes the market-return decomposition framework, showing that intertemporal considerations imply a decomposition of squared market returns (coskewness risk). Our model accounts for 68% of the return variation across portfolios sorted by size, book-to-market ratio, momentum, investment, and profitability for a modern U.S. sample period. Further, our findings highlight the importance of covariation risk, that is, the risk of simultaneous unfavorable shocks to cash flows and discount rates, in understanding equity risk premia.