We propose a new modeling approach for the cross section of returns. Our method, Instrumented Principal Components Analysis (IPCA), allows for latent factors and time-varying loadings by introducing observable characteristics that instrument for the unobservable dynamic loadings. If the...

This paper presents an empirical analysis of changes in individual earnings and hours over time. Using longitudinal data from three panel surveys,we catalogue the main features of the covariance structure of changes in earnings and hours. We then present an interpretation of these features in...

The recent literature on instrumental variables (IV) features models in which agents sort into treatment status on the basis of gains from treatment as well as on baseline-pretreatment levels. Components of the gains known to the agents and acted on by them may not be known by the observing...

This paper investigates the behavior of asset prices in an endowment economy in which a representative agent with power utility consumes the dividends of multiple assets. The assets are Lucas trees; a collection of Lucas trees is a Lucas orchard. The model generates return correlations that vary...

Large shareholders may play an important role for firm performance and policies, but identifying this empirically presents a challenge due to the endogeneity of ownership structures. We develop and test an empirical framework which allows us to separate selection from treatment effects of large...

The fine structure of earnings is defined by a theoretically meaningful decomposition of the covariance matrix of earnings (or log earnings) time series. A three-element variance components model is proposed for analyzing earnings of young workers. These components are interpreted as the effects...