We show that investors’ learning can drastically alter the dynamics of the variance risk premium: it no longer increases as economic conditions deteriorate but exhibits a highly nonlinear pattern, occasionally even turning negative. We demonstrate the intuition using a simple two-state...

Using micro-level household mortgage data, I measure dispersion in the credit quality of borrowers in the housing market and show that it forecasts regional real economic activity. I provide empirical evidence that associates the predictive power of dispersion with heterogeneity in the exposure...

The VIX barely drops at macro-announcements. This is at odds with virtually all models that attempt to explain the "macro-announcement premium." We point out that the macro-announcement sample is too small, considering the high volatility and fat tail of daily returns. Our small-sample argument...

We develop a model that endogenously generates slowly unfolding disasters not only in the macroeconomy, but also in financial markets. In our model, investors cannot exactly distinguish whether the economy is experiencing a mild/temporary downturn or is on the verge of a severe/prolonged...