dividend yield is typically viewed as a reflection of either changing risk, related to the business cycle, or irrational … risk as well as expected return, we develop Bayesian methods to examine the interaction between the data and an investor … and a riskless asset. In general, however, the simple risk/return model of Merton (1980) explains very little of the yield …

conditional equity premium and risk-free rate in equilibrium. Our empirical analysis shows that the equity premium appears to be …

power for expected returns across a range of equity characteristic portfolios and non-equity asset classes, with risk price … estimates that are of the same sign and similar in magnitude. Positive exposure to capital share risk earns a positive risk …

, economic uncertainty, and risk premia influence firms' financing and default policies. Countercyclical fluctuations in risk …. These comovements generate large credit risk premia for investment grade firms, which helps address the "credit spread …

excessively pessimistic. We find that because irrational traders introduce an additional source of risk, rational investors reduce … "sentiment risk." The answer to the question posed in the title is: "There is little that rational investors can do optimally to …

and volatility on investment strategies. Using the event-risk framework of Duffie, Pan, and Singleton (2000), we provide … analytical solutions to the optimal portfolio problem. Event risk dramatically affects the optimal strategy. An investor facing … event risk is less willing to take leveraged or short positions. The investor acts as if some portion of his wealth may …

for reasons unrelated to risk. They also lead to a rich pattern of own- and cross-autocorrelations, sample premia that can …