We examine the relation between inventory investment and the cost of capital in the time series and the cross section. We find consistent evidence that risk premia, rather than real interest rates, are strongly negatively related to future inventory growth at the aggregate, industry, and firm...

This paper investigates the asset pricing and macroeconomic implications of the ratio of new orders (NO) to shipments (S) of durable goods. NO/S is a measure of investment commitments by firms, and high values of NO/S are associated with a business cycle peak. High NO/S predicts a short-run...

We propose a canonical representation for affine term structure models where the state vector is comprised of the first few Taylor-series components of the yield curve and their quadratic (co-)variations. With this representation: (i) the state variables have simple physical interpretations such...

We show that microstructure biases in the estimation of expected option returns and risk premia are large, in some cases over 50 basis points per day. We propose a new method that corrects for these biases. We then apply our method to real data and produce three main findings. First, the...

Most affine models of the term structure with stochastic volatility (SV) predict that the variance of the short rate is simultaneously a linear combination of yields and the quadratic variation of the spot rate. However, we find empirically that the A1(3) SV model generates a time series for the...

This paper is based on the premise that knowledge about the alphas of one set of funds will influence an investor's beliefs about other funds. This will be true insofar as an investor's expectation about the performance of a fund is partly a belief about the abilities of mutual fund managers as...

Most affine models of the term structure with stochastic volatility (SV) predict that the variance of the short rate is simultaneously a linear combination of yields and the quadratic variation of the spot rate. However, we find empirically that the A1(3) SV model generates a time series for the...

We analyze the volatility risk premium by applying a modified two-pass Fama-MacBeth procedure to the returns of a large cross section of the returns of options on individual equities. Our results provide strong evidence of a volatility risk premium that is increasing in the level of overall...

Baba, Hendry and Starr (1992) attempt to restore a stable specification for the demand for M1 balances in the United States. Estimating an error correction model that simultaneously models the long-run and short-run determinants of money demand, they introduce two new explanatory factors of the...