We propose a new approach to imposing economic constraints on time series forecasts of the equity premium. Economic constraints are used to modify the posterior distribution of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We...

This study investigates whether geographic variation in religion-induced gambling norms affects aggregate market outcomes. We conjecture that gambling propensity would be stronger in regions with higher concentrations of Catholics relative to Protestants. Consistent with our conjecture, we show...

We test if issuers of asset- and mortgage-backed securities receive rating favors from agencies with which they maintain strong business relationships. Controlling for issuer fixed effects and a large set of credit risk determinants, we show that agencies publish better ratings for those issuers...

Using index options and returns from 1996 to 2009, I estimate discrete-time models where asset returns follow a Brownian increment and a Lévy jump. Time variations in these models are generated with an affine GARCH, which facilitates the empirical implementation. I find that the risk premium...

This paper examines how well alternate time-changed Lévy processes capture stochastic volatility and the substantial outliers observed in U.S. stock market returns over the past 85 years. The autocorrelation of daily stock market returns varies substantially over time, necessitating an...

This study identifies how country differences on a key cultural dimension—egalitarianism—influence international investment flows. A society's cultural orientation toward egalitarianism is manifested by intolerance for abuses of market and political power and a desire for protecting less...

We show that individuals who have experienced a systemic banking crisis are 11 percentage points less likely to use banks in the U.S. than otherwise similar individuals who emigrated from the same country but did not live through a crisis. This finding is robust to controlling for exposure to...

We present a model with leverage and margin constraints that vary across investors and time. We find evidence consistent with each of the model's five central predictions: (1) Because constrained investors bid up high-beta assets, high beta is associated with low alpha, as we find empirically...

Rating agencies are often criticized for being biased in favor of borrowers, for being too slow to downgrade following credit quality deterioration, and for being oligopolists. Based on a model that takes into account the feedback effects of credit ratings, I show that: (i) rating agencies...

Using a supplier–client matched sample, we study the effect of the 2007–2008 financial crisis on between-firm liquidity provision. Consistent with a causal effect of a negative shock to bank credit, we find that firms with high precrisis liquidity levels increased the trade credit extended...