Theories of capital market imperfections have strong cross-sectional implications not only for corporate investment, but also for asset prices. Motivated by these theories, we develop a hypothesis about a differential effect of debt capacity on stock returns across financially constrained and...

This paper investigates if the parameters of the cointegration among consumption, asset wealth, and labor income are stable over the post-war sample period. Although Lettau and Ludvigson (2001a) find that the estimated consumption-wealth ratio (CAY) is a strong predictor of aggregate stock...