We derive the equilibrium asset expected returns when there is ambiguity in asset expected returns, as well as ambiguity in asset return variances. In our model, ambiguity risk is systematic in nature and is non-diversifiable. Under regularity conditions, expected asset returns are linearly...

We explore the firm's required return on equity when it has a target debt ratio (TDR). We show that a firm's expected return is increasing in the product of the distance between its debt ratio (DR) from its TDR (E[TDR-DR]), its speed of adjustment, and the spread of its tax benefits of debt over...

We systematically study the value of the information contained in closed-end fund (CEF) premiums. We parametrically estimate CEF expected returns as a function of the history of CEF premiums, in addition to the current premium, and buy the quintile of funds with the highest expected returns and...

Pricing errors in exchange rates are largest during Asian trading hours and decrease until European-New York overlapping trading hours at which point the cycle begins again. Substantial heterogeneity exists in this pattern across exchange rates. Currencies have smaller pricing errors during...

I provide evidence that financial contagion risk is an important source of the equity risk premium. Banks' contributions to aggregate financial contagion are estimated in a state space framework and linked to systemic risk. Greater bank connectedness today leads to increased systemic risk 3-12...

The classical practice in exchange rate model estimation is to use bilateral differentials of macro fundamentals. Empirically, capitals may not place equal importance on the economic fundamentals among all countries. Therefore, allowing each country’s variable to enter the model independently...

Jumps and cojumps are examined in the covariance matrices of high-frequency financial markets. We propose a new method for identifying intraday volatility jumps in the diffusive covariance matrix of asset pairs. Our method avoids model misspecification errors, is able to identify multiple...