This paper argues that the capacity of financial markets to aggregate dispersed information about economic conditions is diminished in times of distress, resulting in countercyclical uncertainty. Building on a rational expectations equilibrium dynamic environment, I model informed traders as...

We show that the stock market downturns of 2000-2002 and 2007-2009 have very different proximate causes. The early 2000's saw a large increase in the discount rates applied to profits by rational investors, while the late 2000's saw a decrease in rational expectations of future profits. We reach...

The composition of risks assumed by U. S. commercial banks underwent a dramatic transformation over the years leading up to the financial crisis: between 2000 and 2006 idiosyncratic risk dropped by almost half while systematic risk doubled. These patterns, more pronounced in banks with heavy...

We develop and test a frog-in-the-pan (FIP) hypothesis that predicts investors are less attentive to information arriving continuously in small amounts than to information with the same cumulative stock price implications arriving in large amounts at discrete timepoints. Intuitively, we...

Not long ago securities were traded by human traders in face-to-face markets. The ecosystem of an open outcry market was well-known, visible to a human eye, and rigidly prescribed. Now trading is increasingly done in anonymous electronic markets where traders do not have designated functions or...

The conventional view of market timing suggests an unambiguous, negative relation between equity misvaluation and the equity share in new issues - that is, firms with overvalued equity issue more equity and, all else equal, less debt. We question this conventional view in the paper. Using price...

We examine a stylized version of Miller's (1977) hypothesis as the explanation of the puzzling ndings of both Chordia, Subrahmanyam and Anshuman (2001) and Ang, Hodrick, Xing and Zhang (2006). Identifying stocks that are prone to disagreement by using low analyst coverage produces results that...

The Law of One Price suggests a simple arbitrage relationship that links prices of Treasury bonds when issued by the same issuer in different currency denominations. This relationship was widely violated during the 2007-2008 Financial Crisis. In this paper, we use international cross-sectional...

We investigate an asset pricing model with preferences cycling between high risk aversion and low EIS in fall/winter and the reverse in spring/summer. Calibrating to consumption data and allowing plausible preference parameter values, we produce returns that match observed equity and Treasury...

We find that commodity risk is priced in the cross-section of US stock returns. Following the financialization of commodities, investors hedge commodity price risk directly in the futures market, primarily via commodity index investments, whereas before they gained commodity exposure mainly via...