We investigate the relation between the risk premia observed in forward foreign exchange markets and international equity markets using the Arbitrage Pricing Theory. If returns on well-diversified equity portfolios explain movements in agents' intertemporal marginal rate of substitution then the...

This paper investigates the nature of observed deviations from the unbiased expectations hypothesis in the forward foreign exchange market. If these deviations are due to risk premia then the same premia should be observed in nominal bonds denominated in different currencies. This condition...

In this paper we develop a measure of liquidity, price impact, which quantifies the change in a firm's stock price associated with its observed net trading volume. For a large set of institutional trades we compare, out-of-sample, characteristic-based estimates of price impact to actual price...

An important issue in applications of multifactor models of asset returns is the appropriate number of factors. Most extant tests for the number of factors are valid only for strict factor models, in which diversifiable returns are uncorrelated across assets. In this paper we develop a test...

A significant fraction of research by financial economists over the last few decades has attempted to understand various anomalous or puzzling empirical observations taken from financial markets. These range from the equity premium puzzle at the aggregate level, to the small firm effect, to...

This paper provides new evidence of how macroeconomic conditions affect capital structure choice. We model firms' target capital structures as a function of macroeconomic conditions and firm-specific variables. We split our sample based on a measure of financial constraints. Target leverage is...

In this paper we (a) quantify equity liquidity using a measure of price impact, the change in a firm's stock price associated with its observed net trading volume; (b) relate the measured price impact to a set of predetermined firm characteristics that serve as proxies for the severity of adverse...

One under-examined cost of trading is illiquidity. This paper measures equity illiquidity as the change in a firm's stock price associated with its observed trading volume. Increasing the magnitude of net turnover during a 5-minute interval by 0.1% of the shares outstanding produces an average...

Abstract We propose estimators of the stochastic discount factor (SDF) using large cross-sections of individual stocks. Our small-sample bias corrections allow us to exploit unbalanced panels of individual stock returns. Our estimators can accommodate prespecified traded and non-traded factors,...

The work of Treynor and Mazuy (1966) spawned an extensive literature on returns-based measurement of portfolio performance which distinguishes between a manager's ability to act on information specific to an individual asset (asset selection) and ability to forecast systematic risk premiums and...