Asymmetric volatility in equity markets has been widely documented in finance, where two competing explanations, as considered in Bekaert and Wu (2000), are the financial leverage and the volatility feedback hypothesis. We explicitly test for the role of both hypotheses in explaining extreme...

This paper investigates the direct theoretical relationship between the variance of stock returns (σ2E) and financial leverage (L) considering both corporate and personal taxes. Using a dataset of U.S. industrial firms, we examine the variance of stock returns as a function of the firm’s...

This paper examines the cross-sectional relation between leverage and future stock returns. Prior research documents a puzzling negative correlation. We show that it is largely caused by firms' use of internal financing when having significant off-balance-sheet operating assets due to...

We investigate the informational content of credit default swap (CDS) spreads for future volatility of (firm) assets and equity. In the cross-section, CDS spreads are significantly more informative about future asset than equity volatility. The informational content of historical and option...

We find that leverage-initiating stocks experience an increase in return comovement with existing leveraged stocks and a decrease in return comovement with existing zero-leverage stocks in the year after the leverage initiation event. In contrast, stocks that fully deleverage comove more with...

We investigate the consequences of widespread ESG-based portfolio exclusions on the expected returns of firms subject to exclusion. We use the exclusions of Norway's ``Oil Fund'' as a sample of low quality ESG stocks. The fund is the world's largest SWF, whose ESG decisions are viewed as a model...

The WACC is just the rate at which the Free Cash Flows must be discounted to obtain the same result as in the valuation using Equity Cash Flows discounted at the required return to equity (Ke).The WACC is neither a cost nor a required return: it is a weighted average of a cost and a required...

We provide the first large-scale study of the performance of expected-return proxies (ERPs) internationally. Analyst-forecast-based ICCs are sparsely populated and not robustly associated with future returns. Earnings-model-forecast-based ICCs are well-populated, but are unreliable outside the...

We separately investigate the pricing relevance of informed trading predictable from public information, and that of unpredictable idiosyncratic informed trading that potentially captures private information. We use a direct profitability-based and immediacy-driven measure of price-relevant...