We study the impact of income disaster-which can be triggered by various reasons such as pandemics and technological disruption-on Friedman's permanent income hypothesis. Although the hypothesis is still retained, our general equilibrium model offers two insights. First, with income disaster the...

We investigate the dynamic problem of how much attention an investor should pay to news in order to learn about stock-return predictability and maximize expected lifetime utility. We show that the optimal amount of attention is U-shaped in the return predictor, increasing with both uncertainty...

We provide empirical evidence that CAPM-betas positively predict asset returns when market returns are predicted to be high, which occurs about every other month. Consequently, the product of beta and the predicted market return (CAPM) predicts asset returns by combining the out-of-sample...

We construct a dynamic model of a multi-asset over-the-counter (OTC) market that operates via search and bargaining and empirically test its implications using data from the US corporate bond market. The key novelty in our model is that investors can hold and manage portfolios of OTC-traded...

In this paper we survey the theoretical and empirical literatures on market liquidity. We organize both literatures around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how...

I provide evidence that risks in macroeconomic fundamentals contain valuable information about bond risk premia. I extract factors from a set of quantile-based risk measures estimated for US macroeconomic variables and document that they account for up to 31% of the variation in excess bond...

This paper studies return predictability in federal funds futures. I show that over the period 1990 to 2018, predictor variables from the literature do not consistently outperform the expectations hypothesis when evaluated out-of-sample. Further, while forecasts from advanced forecasting methods...

This study investigated the linkage between the effects of yield slope and the performance of stocks for the period, 2006-2012. The paper found a significant link between the two variables. The sharp increase of yield slope positively affected stock market performance of small, mid and big cap...

This paper studies the predictability of bond risk premia by means of expectations to future business conditions using survey forecasts from the Survey of Professional Forecasters. We show that expected business conditions consistently affect excess bond returns and that the inclusion of...

This paper presents a present-biased general equilibrium model that explains many features of bond behavior. Present-biased investors increase (decrease) short-term (long-term) hedge demands compared to standard preferences. Hence, present bias drives up (down) short-term bond prices (yields)...