Demand is growing for a better understanding of how assets are priced in countries outside of the U.S.While financial data are available for many firms world-wide, it is important to have a reliable andreplicable method of constructing high-quality systematic risk factors from these data. This...

We explore the pricing of variance risk by decomposing stocks' total variance into systematicand idiosyncratic return variances. While systematic variance risk exhibits a negative priceof risk, common shocks to the variances of idiosyncratic returns carry a large positive riskpremium. This...

A common method of valuing the equity in leveraged transactions is the flows-to-equity method whereby the free cash flow available to equity holders is discounted at the cost of equity. This method uses a standard definition of equity free cash flow, but the cost of equity varies over time as...

We introduce and study no-good-deal valuation bounds defined in terms of expected utility. A utility-based good deal is a payoff whose expected utility is toohigh in comparison to the utility of its price. Forbidding good deals induces, viaduality, restrictions on pricing kernels and thereby...

We study the exponential utility indifference valuation of a contingent claim B in an incomplete market driven by two Brownian motions. The claim depends on a nontradable asset stochastically correlated with the traded asset available for hedging. We use martingale arguments to provide upper and...

We introduce heterogeneity in agents’ risk aversion into a general equilibrium asset pricing framework with recursive preferences. Agents trade in a stock, whose dividend is the only source of consumption, and in a short-term bond in zero net supply. In equilibrium the less risk averse agents...

In this study, we examine whether changes in the investment opportunityset stemming from interest rate and credit risks are priced in the US, theUK and the Swiss equity premia by estimating both two-factor and three-factor versions of Merton’s ICAPM. The systematic pricing of credit riskis...

Macroeconomic asset pricing literature is concerned with many puzzling aspects in the financial market. Most prominent are the equity premium puzzle, the risk–free rate puzzle, and the volatility puzzle. Moreover, the literature has come to different conclusions regarding the movement of the...