Financial innovation in recent decades has expanded portfolio choice. We investigate how greater choice affects investors' savings and asset returns. We establish a choice channel by which greater portfolio choice increases investors' savings --- by enabling them to earn the aggregate risk...

This paper suggests a novel approach for predicting aggregate stock returns at quarterly and annual frequencies. Weak return predictability is consistent with the view that a stationary component of stock prices is highly persistent. In such cases, expected returns are time-varying but also...

This paper evidences the explanatory power of managers' uncertainty for cross-sectional stock returns. I introduce a novel measure of the degree of managers' uncertain beliefs about future states: manager uncertainty (MU), defined as the count of the word “uncertainty” over the sum of the...

This paper empirically examines the effects of industrial and geographic innovations on firm-level profitability and stock returns due to spillovers. Using the data of U.S. patents and patent inventors, we propose empirical proxies for industrial and geographic spillovers and find a positive...

Operating leverage (OL) and profitability are interrelated determinants of stock returns. We show that the outperformance of firms with high OL is driven by periods of unconstrained aggregate funding conditions. Firms with high OL are more risky in general, but when the Fed eases funding...

Previous writers have attempted to resolve the equity premium puzzle by employing a utility function that depends on current consumption minus (or relative to) past habit consumption. This paper points out that an individual's current utility may also depend upon how well off in the recent past...

The COVID-19 crisis has laid bare many preexisting conditions of modern society. Besides the obvious lack of pandemic preparedness, these include biodiversity loss, air pollution, supply chain vulnerabilities, and inequality, to name a few – all systemic risks that threaten the health and...

We develop a simple three-factor consumption-based asset pricing model that includes wage growth as a risk factor, and evaluate whether the model explains six major CAPM anomalies: book-to-market, investment, operating profitability, long-term return reversal, net share issues, and residual...

I find that when volatility spikes, patient and more risk-averse investors should increase their exposure to stocks whereas impatient and less risk-averse investors should decrease it. This is because investors with a greater willingness to bear risk choose a larger exposure to risky assets on...

We explicitly solve for the aggregate asset prices in a discrete-time general-equilibrium endowment economy with two agents who differ with respect to their preferences for risk aversion and sensitivity to habit, either internal or external. We compute equilibrium quantities -- equity premium,...