We present a model to explain puzzling patterns surrounding cross-sectional night-minus-day return predictabilities. Heterogeneous (“fast” and “slow”) arbitrageurs with offsetting advantages endogenously become the marginal investor at different times of day. Consistent with our model,...

We build a risk management model that incorporates variable capital utilization and procyclical collateral capacity. The former means that capital utilization determines production, which affects capital depreciation and risk exposure, linking capital utilization to firms' risk management...

Effective capital budgeting decisions require reliable estimates of long-term expected returns. I extract a predictor for long-term returns from the book-to-market ratio by controlling for its variation associated with long-term expected profitability. The resulting predictor reliably describes...

We find that bidder-target stock return correlations positively predict merger synergies, and the predictive power is enhanced when we focus more on idiosyncratic correlations. A measure of idiosyncratic correlation (IDC) between bidder and target firms that controls for all other stocks,...

Using the most comprehensive dataset of leveraged funds known to the literature, we measure the market-wide shadow cost of leverage constraints and examine its pricing implications. The shadow cost averages 0.56% per annum from 2006 to 2016, spikes upon quarter-ends when banks face tighter...

We test whether bear market risk - time-variation in the probability of future bear market states - is priced. We construct an Arrow-Debreu security that pays off in bear market states (AD Bear) from traded S&P 500 index options and use its returns to measure bear market risk. We find that bear...

We find important differences in dollar-based and dollar-neutral G10 carry trades. Dollar-neutral trades have positive average returns, are highly negatively skewed, are correlated with risk factors, and exhibit considerable downside risk. In contrast, a diversified dollar-carry portfolio has a...