The Asset pricing literature has produced hundreds of risk factor candidates aimed at explaining the cross-section of expected excess returns, although risk factors which are in fact capable of providing independent information remains an open question. Appling a sparse model, Kozak, Nagel, and...

Assuming that risk premiums are determined by failure risk, we present a stylized model of interactions among risk-proxy variables, external financing, and stock returns in which a common mispricing factor, involving operating profit and external financing, drives the following five asset...

This study examines whether investors’ attitudes toward ambiguity can explain cross-sectional stock returns by investigating the relationship between future stock returns and option-implied volatilities as well as implied third moments. We find that investors’ attitudes toward different...

We explore the term structures of claims to a variety of cash flows: U.S. government bonds (claims to dollars), foreign government bonds (claims to foreign currency), inflation-adjusted bonds (claims to the price index), and equity (claims to future equity indexes or dividends). Average term...

Real risk-free interest rates have trended down over the past 30 years. Puzzlingly in light of this decline, (1) the return on private capital has remained stable or even increased, creating an increasing wedge with safe interest rates; (2) stock market valuation ratios have increased only...

We construct investor sentiment of UK stock market using the procedure of principal component analysis. Using sentiment-augmented EGARCH component model, we analyse the impacts of sentiment on market excess return, the permanent component of market volatility and the transitory component of...

We find that interest rate variance risk premium (IRVRP) - the difference between implied and realized variances of interest rates - is a strong predictor of U.S. Treasury bond returns of maturities ranging between one and ten years for return horizons up to six months. IRVRP is not subsumed by...

We propose a measure of corporate investment plans, namely, the expected investment growth (EIG). We document a robust finding that firms with high EIG have larger future investment growth and earn significantly higher returns than firms with low EIG, which cannot be fully explained by leading...

We decompose total disagreement about macro variables into the disagreement among optimists (i.e., forecasters whose forecast exceeds a certain threshold) and pessimists. Optimistic (pessimistic) forecasters tend to disagree more in good (bad) times. Pessimistic (optimistic) disagreement...