Structural models of default calibrated to historical default rates, recovery rates, and Sharpe ratios typically generate Baa--Aaa credit spreads that are significantly below historical values. However, this "credit spread puzzle" can be resolved if one accounts for the fact that default rates...

A crucial issue in asset pricing is to understand the relative importance of discount rate (DR) news and cash flow (CF) news in driving the time-series and cross-sectional variations of stock returns. Many studies directly estimate the DR news but back out the CF news as the residual. We argue...

A central issue in finance is whether stock prices move because of revisions in expected cash flows or discount rates, and by how much of each. Using direct cash flow forecasts, we show that stock returns have a significant cash flow news component whose importance increases with the investment...

We construct firm-specific measures of expected equity returns using corporate bond yields, and replace standard ex post average returns with our expected-return measures in asset pricing tests. We find that the market beta is significantly priced in the cross section of expected returns. The...