Following theory, we check that funding risk connects illiquidity, volatility and returns in the cross-section of stocks. We show that the illiquidity and volatility of stocks increase with funding shocks, while contemporaneous returns decrease with funding shocks. The dispersions of...

In this paper, we provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage effect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and implied volatility, and find that implied...

We characterize optimal state-dependent pricing rules under various forms of infrequent information. In all models, infrequent price changes arise from the existence of a lump-sum “menu cost.” We entertain various alternatives for the source and nature of infrequent information. In two...

We characterize optimal state-dependent pricing rules under various forms of infrequent information. In all models, infrequent price changes arise from the existence of a lump-sum "menu cost." We entertain various alternatives for the source and nature of infrequent information. In two benchmark...

This paper analyzes optimal investment decisions, in the presence of non-redundant hedge funds, for investors with constant relative risk aversion. Factor regression models with optionlike risk factors and no-arbitrage principles are used to identify and estimate the market price of hedge fund...

We develop a tractable unified framework for solving optimal time- and state-dependent price-setting problems. We use it to study models with adjustment costs and infrequent information, entertaining various alternatives for the source and nature of infrequent information. In particular, we...

We characterize a firm as a nexus of activities and projects with their associated cash flow distributions across states of the world and time periods. We propose a characterization of the firm where variations in the market price of risk induce adjustments in the value-maximizing combination of...

In this paper, we formally show that the cross-sectional variance of stock returns is a consistent and asymptotically efficient estimator for aggregate idiosyncratic volatility. This measure has two key advantages: it is model-free and observable at any frequency. Previous approaches have used...