There are concerns that climate-related physical and political risks are not yet properly reflected in asset prices. To address these concerns, we develop a dynamic asset pricing framework with rare disasters related to climate change. The novelty of this paper lies in linking carbon emissions...

In a New-Keynesian model subject to the zero lower bound (ZLB), constrained monetary policy endogenously results in time-varying equity risk premia and equity-bond market correlations. Liquidity traps at the ZLB are characterized by negatively skewed and increasingly uncertain consumption...

How non-linear are log price-dividend ratios in the fundamental state variables? We work out a novel formula for the price-dividend ratio within a parsimonious affine model to study exactly how much non-linearity is generated by the persistence of the fundamentals. We show that persistence...

The monetary policy shocks have been widely regarded to have effects on the financial markets. Before the 2008 financial crisis, the Federal Reserve adjusted the federal funds target rate to implement the monetary policy. This paper uses event studies to examine the relationship between the...

This study investigated the linkage between the effects of an inverted yield curve and the performance of small, mid, and big cap stocks for the period 2005-2007. The comparative performance of small, mid and big cap stocks during the period was examined. In general, there seemed no significant...

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...

We document an annual cycle in the U.S. Treasury market, with variation in mean monthly returns of over 80 basis points from peak to trough. This seasonal Treasury return pattern does not arise due to macroeconomic seasonalities, seasonal variation in risk, cross-hedging between equity and...

Using an international dataset, this paper documents a negative association between increases in the central government debt-to-GDP ratio and dollar-denominated stock index returns. Depending on the estimation method, raising the debt ratio by one percentage point diminishes the stock returns by...

This paper studies a modern monetary economy: trade in both goods and securities relies on money provided by intermediaries. While money is valued for its liquidity, its creation requires costly leverage. Inflation, security prices and the transmission of monetary policy then depend on the...

This paper shows that changes in the tone of central bank communication have a significant effect on asset prices. Tone captures how the central bank frames economic fundamentals and its monetary policy. When tone becomes more positive, stock prices increase, whereas credit spreads and...