This paper studies the role of fluctuations in the aggregate price-earning ratio at different time scales for predicting stock returns and explore the channels through which returns are predicted. Using U.S. quarterly and international monthly data, we find that cycles in the price-earning ratio...

This paper incorporates expectations-based reference-dependent preferences into the canonical Lucas-tree asset-pricing economy. Expectations-based loss aversion increases the equity premium and decreases the consumption-wealth ratio, because uncertain fluctuations in consumption are more...

This article contributes to the literature on stock market integration by developing and estimating a capital asset pricing model with segmentation effects in order to assess stock market segmentation and its effects on risk premia at the regional level. We show that the estimated degrees of...

This paper investigates the empirical evidence of long-run risk and its implications for the equity premium puzzle. We find that the long-run risk model is generally weakly identified and that standard inferences tend to underestimate the uncertainty of long-run risk. We extend the LM-type test...

Observable covariates are useful for predicting default under the natural measure, but several findings question their value for explaining credit spreads under the pricing measure. We introduce a discrete time no-arbitrage model with observable covariates, which allows for a closed form...

We use an asset pricing approach to compare the effects of expected liquidity and liquidity risk on expected U.S. corporate bond returns. Liquidity measures are constructed for bond portfolios using a Bayesian approach to estimate Roll's measure. The results show that expected bond liquidity and...