Labor market frictions are crucial for the equity premium in production economies. A dynamic stochastic general equilibrium model with recursive utility, search frictions, and capital accumulation yields a high equity premium of 4.26% per annum, a stock market volatility of 11.8%, and a low...

We investigate both theoretically and empirically how unemployment level and its growth affect future stock returns. We find that both a higher unemployment rate and higher growth of unemployment positively predict future stock market returns. In our model, the effects come through their...

This article investigates returns and volatility linkages among stock markets, including emerging Asian (e.g., India, China, Bangladesh, Malaysia, Philippine, and South Korea) stock markets and developed (e.g., United States, United Kingdom, Japan, and Singapore) stock markets. During the sample...

A large literature uses high-frequency changes in interest rates around FOMC announcements to study monetary policy. These yield changes have puzzlingly low explanatory power for the stock market - even in a narrow 30-minute window. We propose a new approach to test whether the unexplained...

Standard theory implies that the discount rates used by firms in investment decisions play a key role in determining investment and in transmitting shocks to asset prices and interest rates to the real economy. However, there exists little evidence on how corporate discount rates change over...

Standard theory implies that the discount rates used by firms in investment decisions (i.e., their required returns to capital) determine investment and transmit financial shocks to the real economy. However, there exists little evidence on how firms' discount rates change over time and affect...

This paper provides evidence to the importance of revisions in expected unemployment rate in the cross-sectional pricing of individual stocks. We introduce a measure of unemployment beta which quantifies monthly-varying stock sensitivity to the innovations in forecasted unemployment rate. Stocks...

We show empirically that survey-based measures of expected inflation are significant and strong predictors of future aggregate stock returns in several industrialized countries both in-sample and out-of-sample. By empirically discriminating between competing sources of this return predictability...

Returns from a zero-investment portfolio that is long in US firms whose dividends alter during a year, and short in firms whose dividends remain the same, produces positive returns in 52 of the 53 years between 1955 and 2007. These positive returns are related to expected inflation, which...

This paper examines the impact of inflation and economic growth expectations and perceived stock market uncertainty on the time-varying correlation between stock and bond returns. The results indicate that stock and bond prices move in the same direction during periods of high inflation...