I study real effects of uncertainty shocks. Using time-varying volatility of the forecast error, I construct a two-part uncertainty metric that consists of persistent and volatile, burstlike components. These indices are used to study empirically several predictions of uncertainty models: that...

The rate of return on corporate investments need not be the same as the equity discount rate. Indeed, rational, agency, and behavioral theories all suggest it will be lower when averaged across firms and over time. We introduce a flow-based approach to capture the return on corporate...

Modigliani and Miller (M&M) proposed that investors forgo dividends, leaving the money available for reinvestment as retained earnings. This recommendation takes two parts: Proposition III, i.e., a dividend has no impact on market value, and Proposition IV, i.e., that financial policy is of no...

Presentation Slides for "Overconfidence, Arbitrage, and Equilibrium Asset Pricing" This paper offers a model in which asset prices reflect both covariance risk and misperceptions of firmsapos prospects, and in which arbitrageurs trade against mispricing. In equilibrium, expected returns are...

The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for...

We show that log-dividends (d) and log-prices (p) are cointegrated, but, instead of de facto assuming the stationarity of the classical log dividend–price ratio, we allow the data to reveal the cointegration vector between d and p. We define the modified dividend–price ratio (mdp), as the...

This paper investigates a corporate tax-based and shareholder tax-based explanation for a firm's decision to finance a stock repurchase by utilizing debt, commonly referred to as a leveraged share repurchase. I find that during tax regimes in which corporate tax rates are more favorable for the...

This paper studies whether open-market share repurchases provide or demand immediacy. Our measure for the predicted return from providing immediacy is constructed to be uncorrelated with other potential determinants of daily executions, namely cost minimization, the provision of liquidity, and...

This paper studies the mismatch between asset managers' performance window and the time average of their benchmark dividend payouts, commonly referred to as duration. Our asset pricing equilibrium mechanism provides the first plausible theoretical foundation for the recent empirical findings...

We highlight an important but overlooked characteristic of financial fragility: “fragile” stocks are more liquid because they are sensitive to non-fundamental liquidity shocks. This reduces their sensitivity to corporate actions with price impact and affects the firms’ incentives to engage...