Stein’s lemma is extended to the case where asset returns have skewed and leptokurticdistributions. The risk premium is still the negative of the covariance of theexcess return with the log SDF.[...] Paul Söderlind]

A simple consumption-based two-period model is used to study the (theoretical)effects of disagreement on asset prices. Analytical and numerical results showthat individual uncertainty has a much larger effect on risk premia than disagreementif (i) the risk aversion is reasonably high and (ii)...

We consider an homogeneous class of assets, whose returns are driven by an unobservablefactor. We derive approximated prediction and pricing formulas for the future factorvalues and their proxies, when the size n of the class is large. Up to order 1=n, these approximationsinvolve solely...

This article studies the e¤ect of limited commitment on stock return volatility in a dynamicgeneral equilibrium economy populated by investors with heterogeneous beliefs. Due to het-erogeneity of beliefs investors disagree about the fundamentals, introducing an additional riskfactor denoted...

We study how the interaction of agents with different beliefs about a firm’s future cash flows determines the jointbehavior of credit spreads, option implied volatilities, and stock returns. Beliefs heterogeneity influences the pricing kernelin a way that supports more realistic credit spreads...

We present a parsimonious and tractable general equilibrium model featuring acontinuum of overlapping generations, as in Blanchard (1985). In addition, we assumethat agents have standard utilities exhibiting constant relative risk aversion and canbe born with differing risk aversions and...

This paper provides, and empirically estimates, a model of sovereign default risk on external debt,in which the sovereign endogenously determines the timing of defaulting. The paper o¤ers theoreticalpredictions of the relationship between credit spreads and related macro-variables that are...

A standard repurchase agreement between two counterpartiesis considered to examine the endogenous choice of collateral, the feasibilityof secured lending, and welfare implications of the central bank’s collateralframework. As an important innovation, we allow for two-sided counterpartyrisk. In...

We find that stocks exhibiting high dispersion in analysts’ earnings forecasts do not onlyunderperform in the U.S. but also in many European countries. Testing for the dispersioneffect in many countries calls for adequate multiple testing controls and we show that theU.S. dispersion effect...

In OTC bond markets many investors face high costs of trade, and these costs appear to berelated to the lack of price transparency. We study the consequences this has for efficient pricediscovery. Prices of municipal bonds react sluggishly to macroeconomic news. Yield spreads overtreasuries...