We develop 50 novel indices of State-level Economic Policy Uncertainty (SEPU) based on newspaper coverage frequency using 204 million state newspaper articles from January 1990 to December 2019. We assess the validity of our measures. Our SEPU indices vary counter-cyclically with respect to...

We develop a dynamic capital structure model to study how manager-shareholders agency conflicts affect the joint determination of financing and investment decisions. We show that the consumption of private benefits channel leads managers not only to choose a lower optimal leverage, but also to...

Heterogeneous-agents asset pricing theories imply that stockholders' consumption has the first-order effect on equity premium. Motivated by these theories, we evaluate the performance of the conditional CCAPM in explaining time-variation in market returns and cross-sectional variation in...

We propose a model where heterogeneous investors endogenously enter or exit the stock market. We characterize the equilibrium and present a novel conditional consumption-CAPM. The model implies a mild procyclical market entry and countercyclical exit. This small change in the composition of...

We test whether long-run consumption risk can explain the cross-section of corporate bond risk premiums. We find that a one-factor model with long-run consumption growth explains the risk premiums on bond portfolios sorted on credit spreads, maturity, credit rating, downside risk, idiosyncratic...

Exploiting the staggered adoptions of US state-level employment protection laws, we provide novel empirical evidence that adoptions of laws increase the level of stock market participation both on the extensive margin and on the intensive margin. These effects are stronger for young, low-income,...

Capital market assumptions (CMAs), which are long-term risk and return forecasts for asset classes, are important pillars of the investment industry. However, applying them reliably in portfolio construction has been (and still is) a challenge in the industry. Despite the difficulties, this...

This paper shows that financial covenants have no value for creditors of highly levered firms, because an attempt to enforce their rights in technical default would result in a lower payoff than continued operations under shareholders' control. This explains the widespread use of cov-lite loans...

DeMiguel et. al. (2009b) made a compelling case that estimation error dwarfs diversification benefits resulting in naive diversification (1/N) dominating mean-variance portfolios. We illustrate the necessary and sufficient conditions for risk-based allocation rules to be optimal in a...

Long-term investors rebalance their portfolios given their views on the investment landscape. Portfolio tilting is often implemented using investors' views on point estimates of asset expected returns which are notoriously difficult to estimate and lead to unstable portfolio weights. We avoid...