Aggregate stock prices, relative to virtually any indicator of fundamental value, soared to unprecedented levels in the 1990s. Even today, after the market declines since 2000, they remain well above historical norms, why?

This paper proposes a habit formation model that explains the failure of the expectations hypothesis documented by Campbell and Shiller (1991) and Fama and Bliss (1987).(...)

What distribution best characterizes the time series and cross section of individual stock returns? To answer this question, we estimate the degree of cross-sectional return skewness relative to a benchmark that nests many models considered in the literature. We find that cross-sectional...

This paper evaluates skewness in the cross-section of stock returns in light of predictions from a well-known class of models. Cross-sectional skewness in monthly returns far exceeds what the standard lognormal model of returns would predict. However, skewness in long-run returns substantially...

After lying dormant for more than two decades, the rare disaster framework has emerged as a leading contender to explain facts about the aggregate market, interest rates, and financial derivatives. In this article, we survey recent models of disaster risk that provide explanations for the equity...

A growing literature shows that credit indicators forecast aggregate real outcomes. While the literature has proposed various explanations, the economic mechanism behind these results remains an open question. In this paper, we show that a simple, frictionless, model explains empirical findings...

This paper evaluates skewness in the cross-section of stock returns in light of predictions from a well-known class of models. Cross-sectional skewness in monthly returns far exceeds what the standard lognormal model of returns would predict. However, skewness in long-run returns substantially...