We study disruptions in debt markets during the COVID-19 crisis. The safer end of the credit spectrum experienced significant losses that are hard to fully reconcile with standard default or risk premium channels. Corporate bonds traded at a large discount to their corresponding CDS, and this...

We document extreme disruption in debt markets during the COVID-19 crisis: a severe price crash accompanied by significant dislocations at the safer end of the credit spectrum. Investment-grade corporate bonds traded at a discount to CDS; ETFs traded at a discount to their NAV, more so for safer...

US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly external finance and accumulate liquidity, either the cost of external finance is relatively low...

Modern financial crises are difficult to explain because they do not always involve bank runs, or the bank runs occur late. For this reason, the first year of the Great Depression, 1930, has remained a puzzle. Industrial production dropped by 20.8 percent despite no nationwide bank run. Using...

Standard risk factors can be hedged with minimal reduction in average returns. Stocks with low factor-exposure have similar performance relative to stocks with high factor-exposure, hence a long-short portfolio hedges factor risk with little reduction in expected returns. This is true for both...

A long-term investor who ignores variation in volatility gives up the equivalent of 2.4% of wealth per year. This result holds for a wide range of parameters that are consistent with U.S. stock market data and it is robust to estimation uncertainty. We propose and test a new channel, the...