We show that merger announcement returns account for virtually all of the measured size premium. An empirical proxy for ex ante takeover exposure positively and robustly relates to cross-sectional expected returns. The relation between size and expected returns becomes positive or insignificant,...

We propose a method to decompose stock returns period by period. First, we argue that one can directly estimate expected stock returns from securities available in modern financial markets (using the real yield curve and the Martin (2017) equity risk premium). Second, we derive a return...

In a standard continuous time asset pricing model, this paper provides an explosion time characterization of asset price bubbles that extends the existing characterization theorems in theliterature from diffusion processes to general semimartingales (which can include jumps). This...

The purpose of this paper is to review the literature on inflation-adjusted bonds, swaps, and derivatives. The methodology for valuation and risk management of these securities is an application of the foreign currency extension of a standard HJM term structure model. The two “currencies” in...

This paper documents important differences in payment for order flow (PFOF), spreads, and price improvement across asset classes. In stocks, we show that PFOF is small. While many retail trades are executed off-exchange, we find that they receive meaningful price improvement, particularly when...

In this article, we document a new stock market anomaly that seems to have escaped the attention of both investment professionals and academics alike. We find that over more than a century, the monthly market return has been predicted by the monthly market return at lag 5. This predictability is...

Focusing on capital asset returns governed by a factor structure, the Arbitrage Pricing Theory (APT) is a one-period model, in which preclusion of arbitrage over static portfolios of these assets leads to a linear relation between the expected return and its covariance with the factors. The APT,...

Does mobile internet distract “connected investors” from participating in financial markets? We examine this limited attention hypothesis using exogenous outages of the Blackberry Internet Service (BIS). We find that trading volume and trading frequency surge by 6% on days when BIS...

We study the liquidity commonality impact of local and foreign institutional investment in the Australian equity market in the cross-section and over time. We find that commonality in liquidity is higher for large stocks compared to small stocks in the cross-section of stocks, and the spread...

We examine the speed and mechanism of the price discovery process following earnings announcements in the after-hours market, a very illiquid trading environment. Prices reflect earnings surprises mostly through changes in quotes rather than through trades. Following positive announcement...