Gary Stern’s remarks at the European Economics and Financial Centre in London, March 2008.

We investigate intermediary asset pricing theories empirically and find strong support for models that have intermediary leverage as the relevant state variable. A parsimonious model that uses detrended dealer leverage as a price-of-risk variable, and innovations to dealer leverage as a pricing...

We study a production economy with multiple sectors financed by issuing securities to agents who face capital constraints. Binding capital constraints propagate business cycles, and a reduction of the interest rate can increase the required return of high-haircut assets since it can increase the...

Contingent capital in the form of debt that converts to equity when a bank faces financial distress has been proposed as a mechanism to enhance financial stability and avoid costly government rescues. Specific proposals vary in their choice of conversion trigger and conversion mechanism. We...

We use the popular television show <i>Mad Money</i>, hosted by Jim Cramer, to test theories of attention and limits to arbitrage. Stock recommendations on <i>Mad Money</i> constitute attention shocks to a large audience of individual traders. We find that stock recommendations lead to large overnight returns...

We correlate analysts' forecast errors with temporal variation in investor sentiment. We find that when sentiment is high, analysts' forecasts of one-year-ahead earnings and long-term earnings growth are relatively more optimistic for "uncertain" or "difficult-to-value" firms. Adding these...