We show that firms' idiosyncratic volatility in returns and cash flows obeys a strong factor structure. We find that the stocks of firms with large, negative common idiosyncratic volatility (CIV) factor betas earn high average returns. The CIV beta quintile spread is 6.4% per year. To explain...

The last 20 years have been marked by a sharp rise in international demand for U.S. reserve assets, or safe stores-of-value. We argue that these trends in international capital flows are likely to be a boon for some (by a lot) but a bane for others (by less). The young benefit from a capital...

The cross-section of returns of stock portfolios sorted along the book-to-market dimension can be understood with a one-factor model. The factor is the nominal bond risk premium, best measured as the Cochrane-Piazzesi (2005, CP) factor. This paper ties the pricing of stocks in the cross-section...

Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increase in the importance of organizational capital in production, (2) the increase in managerial income inequality, and (3) the increase in payouts to the owners. There is a unified explanation for...

Investors in option markets perceive the financial sector to be too-systemic-to-fail. They price in a substantial collective government bailout guarantee, which puts a floor on the value of the financial sector as a whole, but not on its individual members. The guarantee makes put options on the...

We propose a network model of firm volatility in which the customers' growth rate shocks influence the growth rates of their suppliers, larger suppliers have more customers, and the strength of a customer-supplier link depends on the size of the customer firm. Even though all shocks are i.i.d.,...

The volatility of the price-dividend ratio on stocks, the predictability of stock returns, and the lack of predictability in dividend growth are commonly interpreted as evidence of substantial time-variation in risk premia. We construct the wealth-consumption ratio for the U.S., the...

We derive the optimal portfolio of longevity products during the retirement phase. The households health state moves stochastically and the longevity products are priced consistent with equilibrium in the insurance market. The household has recursive preferences, which allows us to study the...

bond markets calibrated to match the increase in foreign ownership of U.S. Treasury and agency debt from 2000-2007 generates an increase in national price-rent ratios comparable to that observed in U.S. data over this period. Moreover, in a simulated transition for the period 2000-2009, the...

Evidence of stock return predictability by financial ratios is still controversial, as documented by inconsistent results for in-sample and out-of-sample regressions and by substantial parameter instability. This paper shows that these seemingly incompatible results can be reconciled if the...