The paper explores whether the co-movement of market returns and equity fund flows can be explained by a common response to macroeconomic news. I find that variables that predict the real economy as well as the equity premium are related to mutual fund flows. Changes in dividend-price ratio...

We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside liquidity (EDL) risks. The cross-section of stock returns reflects a premium if a stock's return (liquidity) is lowest at the same time when the market liquidity (return) is lowest....

This paper is a critical review of the literature on the “equity premium puzzle≓. The puzzle, as originally articulated more than fifteen years ago, underscored the inability of the standard paradigm of Economics and Finance to explain the magnitude of the risk premium, that is, the return...

This paper shows the success of valuation risk-time‐preference shocks in Epstein-Zin utility-in resolving asset pricing puzzles rests sensitively on the way it is introduced. The specification used in the literature is at odds with several desirable properties of recursive preferences because...

We mathematically show that, no matter how many factors are added to the capital asset pricing model (CAPM), beta will always matter. We also show that adding more factors to a single-factor CAPM requires market risk premiums to be modeled as time varying. In addition to allowing time-varying...

This paper examines the risk premium associated with information shocks in equity markets. For all stocks traded on Borsa Istanbul between March 2005 and December 2020, we calculate information shocks as unanticipated information asymmetry by focusing on changes in the proportion of the...

Using standard preferences for asset pricing has not been very successful to match asset price characteristics such as the risk-free interest rate, equity premium and the Sharpe ratio to time series data. Behavioral finance has recently proposed more realistic preferences such as preferences...

In this paper we examine the impact of noisy earnings signals on the equity premium. The motivation for the model is that many agents make current investment decisions based upon IBIS reports that are later revised to actual earnings reports. Agents know that the earnings forecasts are less...

We present data from the Survey of Consumer Finances showing that the increased earnings (labor income) inequality, in combination with increased stockmarket partic- ipation, has roughly doubled stockholders’share of aggregate labor income in the last four decades. We explore the impact of the...

According to standard theory, wealth should have no intrinsic value. Yet, conventional wisdom, recent theories, and data suggest it might. We verify whether or not households have direct preferences over wealth in selecting assets. The fully structural econometric model focuses on a multivariate...