Suppose the ICAPM governs asset prices, and there are a total of S state variables that might be of hedging concern to investors. Can we determine which state variables are in fact of hedging concern? What does it mean to say that these state variables are priced, that is, that they give rise to...

The capital asset pricing model (CAPM) of William Sharpe (1964) and John Lintner (1965) marks the birth of asset pricing theory (resulting in a Nobel Prize for Sharpe in 1990). Before their breakthrough, there were no asset pricing models built from first principles about the nature of tastes...

We examine three pairs of cross-section regressions that test predictions of the tradeoff model, the pecking order model, and models that center on market conditions. The regressions examine (i) the split of new outside financing between share issues and debt, (ii) the split of debt financing...

There is an impressive body of empirical evidence which indicates that successive price changes in individual common stocks are very nearly independent. Recent papers by Mandelbrot and Samuelson show rigorously that independence of successive price changes is consistent with an efficient market,...

The evidence in Fama and Bliss (1987) that forward interest rates forecast future spot interest rates for horizons beyond a year repeats in the out-of-sample 1986-2004 period. But the inference that this forecast power is due to mean reversion of the spot rate toward a constant expected value no...

My paper, “Does the Fed control interest rates?” is in the 2013 Review of Asset Pricing Studies (Volume 3, pp. 180-199). The paper finds that the Fed controls the Federal Funds (FF) rate (the overnight rate on interbank borrowing of reserves). Other short-term rates are related to FF, but...

Value premiums, which we define as value portfolio returns in excess of market portfolio returns, are on average much lower in the second half of the July 1963-June 2019 period. But the high volatility of monthly premiums prevents us from rejecting the hypothesis that expected premiums are the...

A common claim is that home ownership is a good deal because the housing services it provides are untaxed. My simple point is that the property tax paid by a homeowner is in effect an annual tax on housing services. It is an income tax when the homeowner rents the house to somebody else. It's a...

Federal, state, and local governments are similar to nonprofits in that their labor inputs pay taxes, but they are otherwise tax exempt. Governments are involved in some activities special to them, for example, defense, police, and court systems, but many government activities overlap with those...

Political candidates on the left commonly propose an annual tax on wealth. There are lots of difficult questions associated with a wealth tax. For example, what counts as wealth and how is it measured? I put these important issues aside to focus on three simpler but central issues. (i) Since the...