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,...

We embed systematic default, pro-cyclical recovery rates and habit persistence into a model with a slight possibility of a macroeconomic disaster of reasonable magnitude. We derive analytical solutions for defaultable bond prices and show that a single set of structural parameters calibrated to...