We show that the conditional risk estimation in the ICAPM model (Merton, 1973) should contain the unspanned uncertainty beyond stock market if the interest rate is not sufficient to describe the dynamic investment state. Borrowing an aggregated uncertainty measure that captures unspanned...

We uncover a negative correlation between macroeconomic uncertainty and security analyst earning forecasts dispersion, and explain it through herding behavior bias of the analysts. We find that the herding firms, whose analysts suffer the herding bias, have greater firm-level uncertainty than...

We identify factors from a large set of anomalies for explaining hedge fund returns using machine learning methods. Our new model combines anomaly factors with market and macro factors and outperforms existing models both in-sample and out-of-sample. Moreover, the model leads to a significant...

In this paper, we provide an estimate of the ex-ante risk premia on earnings announcements based on the option market. We find that the risk premia are time-varying and have predictive power on future stock returns. With our ex-ante risk premia as a measure of uncertainty before each earnings...

In this paper, we uncover the first momentum pattern of corporate bonds. In contrast to the popular stock momentum, originated by Jegadeesh and Titman (1993) but unextendable to bonds, our momentum is based on the risk components of the bonds rather than past returns. We find that bonds with...

This paper characterizes the forces that determine time-variation in expected international asset returns. We offer a number of innovations. By using the latent factor technique, we do not have to prespecify the sources of risk. We solve for the latent premiums and characterize their...

In this paper, we construct a new variance bound on any stochastic discount factor (SDF) of the form m = m(x), with x being a vector of state variables, which tightens the well-known Hansen-Jagannathan bound by a ratio of one over the multiple correlation coefficient between x and the standard...

This paper shows that real macroeconomic variables have power to predict movements in the term structure of interest rates. This complements recent evidence that links the term structure to expected stock returns. We find that up to 86 percent of the variation in the term premia are due to the...

Welch and Goyal (2008) find that numerous economic variables with in-sample predictive ability for the equity premium fail to deliver consistent out-of-sample forecasting gains relative to the historical average. Arguing that model uncertainty and instability seriously impair the forecasting...

In this paper, we show that the existence of a large, negative wealth shock and insufficient insurance against such a shock could explain both the limited stock market participation puzzle and the low-consumption-high-savings puzzle. We then conduct an empirical analysis on the relation between...