We examine the relation between inventory investment and the cost of capital in the time series and the cross section. We find consistent evidence that risk premiums, rather than real interest rates, are strongly negatively related to future inventory growth at the aggregate, industry, and firm...

Most affine models of the term structure with stochastic volatility predict that the variance of the short rate should play a 'dual role' in that it should also equal a linear combination of yields. However, we find that estimation of a standard affine three-factor model results in a variance...