Little is known about how bank capital affects bank stock performance. We show that capital does not affect returns unconditionally, but high-capital banks have higher risk-adjusted stock returns (alphas) than low-capital banks in bad times in and out of sample. Trading strategies earn...

We study a continuous-time pure exchange economy where idiosyncratic cash flow risks are priced via investors' heterogeneous beliefs. Investors perceive idiosyncratic cash flow risks differently through heterogeneous subjective mean growth rates on a firm's cash flow. This impacts equilibrium...

This paper studies the impact of ambiguous information regarding future interest rates on bond prices. A simple bond-pricing model with ambiguity aversion shows that positive bond uncertainty premiums exist, and the interest rate ambiguity affects the term structure of interest rates and yield...

In this paper we measure the time-varying uncertainty of macroeconomic fluctuations and study its link to asset returns via a consumption-based asset pricing model. To this end, we introduce a stochastic volatility model employing a latent nonstationary common volatility with two asymptotic...

Affine term structure models (ATSMs) are known to have a trade-off in predicting future Treasury yields and fitting the time-varying volatility of interest rates. This paper empirically studies the role of macroeconomic variables in simultaneously achieving these two goals under affine models....

This paper examines the daily abnormal returns of corporate bonds with different priorities following Moody's announcements. We show that bond returns react significantly positive (negative) following upgrade (downgrade) Watchlist events but not necessarily following rating change events....

This paper presents a monetary model of the term structure of interest rates. This model is intended to explain the stylized facts in Treasury yields including counter cyclical variations of bond risk premia without challenging both short-run and long-run monetary facts. To this end, we study...

This paper studies time varying bond returns via macroeconomic variables. We find that a single macro index consisting of inflation, real activities and money can predict annual excess bond returns of 1-5 year maturities with R-squares up to 37%. The macro factor has a symmetric tent-shape, when...

This paper proposes a neoclassical growth model of a small open economy, connecting international trade to real GDP growth and structural transformation from agriculture to non-agriculture. The calibrated model generates 'growth miracles,' to which the contributors are learning by doing and...