Embedding disasters into a general equilibrium production economy with heterogeneous firms induces strong nonlinearity in the pricing kernel, helping explain the empirical failure of the (consumption) CAPM. Our single-factor model reproduces the failure of the CAPM in explaining the value...

Using hundreds of significant anomalies as testing portfolios, this paper compares the performance of major empirical asset pricing models. The q-factor model and a closely related five-factor model are the two best performing models among a long array of models. The q-factor model outperforms...

We examine the dynamics of bond correlation using a broad sample of US corporate bonds, and document that bond correlation varies heavily over time. We attribute this variation in bond correlation to variation in risk factor correlation reflecting time-varying flight-to-quality behavior of...

Based on individual CDS transactions cleared by the Depository Trust & Clearing Corporation, we show that illiquidity strongly affects credit default swap premiums. We identify the following effects: First, transaction direction affects prices, as buy (sell) orders lead to premium increases...

We analyze the impact of market frictions on trading volume and liquidity premia for finite maturity assets when investors differ in their investment horizons. In equilibrium, illiquidity spills over from short-term to long-term assets and trading concentrates on assets of intermediate maturity....

In this paper we show that informational and real frictions in CDS markets strongly affect CDS premia. We derive this main finding using a proprietary set of individual CDS transactions cleared by the Depository Trust & Clearing Corporation. We first show that CDS traders adjust the CDS premium...

Motivated from investment-based asset pricing, we propose a new factor model that consists of the market factor, a size factor, an investment factor, and a return-on-equity factor. The new model [i] outperforms the Carhart (1997) four-factor model in pricing portfolios formed on earnings...

In this paper we show that informational and real frictions in CDS markets strongly affect CDS premia. We derive this main finding using a proprietary set of individual CDS transactions cleared by the Depository Trust & Clearing Corporation. We first show that CDS traders adjust the CDS premium...

We analyze the impact of market frictions on trading volume and liquidity premia of finite maturity assets when investors differ in their investment horizons. In equilibrium, short-horizon investors only invest in short-term assets and illiquidity spills over from short-term to long-term...

We examine the dynamics of bond correlation using a broad sample of US corporate bonds, and document that bond correlation varies heavily over time. We attribute this variation in bond correlation to variation in risk factor correlation reflecting time-varying flight-to-quality behavior of...