The rapid growth of the market-based financial system since the mid-1980s changed the nature of financial intermediation in the United States profoundly. Within the market-based financial system, "shadow banks" are particularly important institutions. Shadow banks are financial intermediaries...

The financial crisis of 2007-09 highlighted the changing role of financial institutions and the growing importance of the "shadow banking system," which grew out of the securitization of assets and the integration of banking with capital market developments. This trend was most pronounced in the...

We present evidence that fluctuations in the aggregate balance sheets of financial intermediaries forecast exchange rate returns - at weekly, monthly, and quarterly frequencies, both in and out of sample, and for a large set of countries. We estimate prices of risk using a cross-sectional,...

In a market-based financial system, banking and capital market developments are inseparable, and funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Offering a window on liquidity, the balance sheet growth of broker-dealers provides a...

This paper models the impact of arbitrageurs on stock prices when arbitrageurs are uncertain about the drift of the dividend process of a risky asset. Under perfect information, the presence of risk-neutral arbitrageurs unambiguously reduces the volatility of asset returns. When arbitrageurs are...

We define CoVaR as the value at risk (VaR) of financial institutions conditional on other institutions being in distress. The increase of CoVaR relative to VaR measures spillover risk among institutions. We estimate CoVaR using quantile regressions and document significant CoVaR increases among...

We decompose the time series of equity market risk into short- and long-run volatility components. Both components have negative and highly significant prices of risk in the cross section of equity returns. A three-factor model with the market return and the two volatility components compares...

We complement the conditional capital asset pricing model (CAPM) by introducing unobservable long-run changes in risk factor loadings. In this environment, investors rationally “learn” the long-run level of factor loading by observing realized returns. As a direct consequence of this...

In a market-based financial system, banking and capital market developments are inseparable. We document evidence that balance sheets of market-based financial intermediaries provide a window on the transmission of monetary policy through capital market conditions. Short-term interest rates are...

We estimate the time series and cross section of bond returns by way of three-stage ordinary least squares, which we label dynamic Fama-MacBeth regressions. Our approach allows for estimation of models with a large number of pricing factors. Even though we do not impose yield cross-equation...