This paper studies whether stock returns' sensitivities to aggregate liquidity fluctuations and the pricing of liquidity risk vary over time. We find that liquidity betas vary across two distinct states, one with high liquidity betas and the other with low betas. The high liquidity beta state...

We develop a conditional capital asset pricing model in continuous-time that allows for stochastic beta exposure. When beta co-moves with market variance and the stochastic discount factor (SDF), beta risk is priced, and the expected return on a stock deviates from the security market line. The...

We study the term structure of variance (total risk), systematic and idiosyncratic risk. Consistent with the expectations hypothesis, we find that, for the entire market, the slope of the term structure of variance is mainly informative about the path of future variance. Thus, there is little...

The capital asset pricing model has failed to explain the effect of systematic risk (referred to as beta) on actual stock market returns. Accordingly, this study analyzes daily returns by splitting it into overnight and daytime returns. The study analysis empirically confirms a positive...

We test a two-beta currency pricing model that features betas with risk-premium news and real-rate news of the currency market. Unconditionally, beta with currency market risk-premium news is "bad" because of a significantly positive price of risk of 2.52% per year; beta with global real-rate...

This paper develops a new approach to explain why risk factors constructed from option returns are priced in the stock market. We decompose an option- based factor into three main components and identify the one responsible for the beta-return relationship. Applying this method to the bear risk...

We show theoretically and empirically that no-arbitrage pricing magnifies the importance of noise when replication requires offsetting positions with similar fundamentals. This occurs because fundamentals are hedged, while any errors in the underlying asset prices are levered and amplified....

This paper documents a significant risk premium for financial intermediation risk in the cross section of equity returns. Firms that borrow from highly levered financial intermediaries have on average 4% higher expected returns relative to firms with low-leverage lenders. This difference cannot...