I study the degree of market integration between U.S. corporate bonds and stocks of their issuers. I document that trading costs and short-selling constraints, which are often imposed on market participants, regularize optimal Sharpe ratio portfolios. These novel trading frictions are consistent...

We show analytically under quite general conditions that implied rates of return based on analysts' earnings forecasts are only a downward biased estimator for future expected one-period returns and therefore not suited for computing market risk premia. The extent of this bias is substantial as...

We examine whether sensitivities to cash flow (CF) and discount rate (DR) risk in down markets provide an explanation for the investment effect, where low-investment stocks earn higher expected returns than high-investment stocks. We show how productivity and financing constraints asymmetrically...

We examine the effect of aggregate cash flow news and discount rate news on momentum returns. We find that momentum profits are higher following aggregate positive cash flow news, even in down markets or low sentiment periods. This finding expands on the evidence in Cooper et al. (2004) that...

An efficient market is thought to be desirable by many legislators, regulators, and academicians. At the same time, they seem adamant that the investment industry unbundle. These two positions are at odds unless it is proposed that investment research be subsidized. Regulators who insist on...

Three concepts: stochastic discount factors, multi-beta pricing and mean-variance efficiency, are at the core of modern empirical asset pricing. This chapter reviews these paradigms and the relations among them, concentrating on conditional asset-pricing models where lagged variables serve as...

When Capital Asset pricing Model (CAPM) is considered as valid asset pricing theory, Security Market Line (SML) is supposed to give ex-ante returns for the single period investment horizon. Since the required returns should be same as the cost of equity (discount rates) in efficient markets, SML...

Until the advent of exchange-traded funds (ETFs), closed-end funds (CEFs) were the only professionally managed portfolios suitable for non-accredited investors that could be traded like individual stocks. We hypothesize that the introduction of an ETF in an asset class similar to an existing CEF...

The finance literature has documented a number of timing strategies that obtain superior Sharpe ratios and alphas relative to underlying buy-and-hold portfolios by employing simple calendar- or indicator-based weighting schemes. I document a novel fact regarding such timing strategies: the...