We test the hypothesis that the 2003 dividend tax cut boosted U.S. stock prices and thus lowered the cost of equity. Using an event- study methodology, we attempt to identify an aggregate stock market effect by comparing the behavior of U.S. common stock prices to that of European stocks and...

Numerous studies have documented the failure of consumption-based pricing models to explain observed patterns in stock and bond returns. This failure has sometimes been attributed to frictions, transaction costs or durability. If such frictions are important, they should primarily affect the...

We investigate the information content of inter-transaction time and find that it varies both across stocks and over time. On average, inter-transaction time is found to be informative whenever stocks are sufficiently traded. The magnitude of the information content is found to be larger for...

Stock market prices are procyclical, while investment good prices are countercyclical. A real business cycle model calibrated to these observations implies that 75% of the cyclical variation in aggregate output is due to an investment-specific technology shock, while the rest is due to an...

This paper identifies a specific set of agents as noise traders in U.S. equity markets, and examines their effects on returns. These agents, who speculate using the "head-and-shoulders" chart pattern, are shown to qualify as noise traders because (1) trading volume is exceptionally high when...

This paper models the impact of arbitrageurs on stock prices when arbitrageurs are uncertain about the drift of the dividend process of a risky asset. Under perfect information, the presence of risk-neutral arbitrageurs unambiguously reduces the volatility of asset returns. When arbitrageurs are...

This paper analyzes the impact of unanticipated changes in the federal funds rate target on equity prices, with the aim of both estimating the size of the typical reaction and understanding the reasons for the market's response. We find that over the June 1989-December 2002 sample period, a...

This paper studies the role of detrended wealth in predicting stock returns. We call a transitory movement in wealth one that produces a deviation from its shared trend with consumption and labor income. Using U.S. quarterly stock market data, we find that these trend deviations in wealth are...