The observed predictability of excess returns in equity and foreign exchange markets has largely been attributed to the presence of time-varying risk premiums in these markets. For example, excess equity returns were found to be explained by various financial and economic variables. Similarly,...

In this paper, we test a version of the conditional CAPM with respect to a local market portfolio, proxied by the Brazilian stock index during the 1976-1992 period. We also test a conditional APT model by using the difference between the 30-day rate (Cdb) and the overnight rate as a second...

Following theory, we check that funding risk connects illiquidity, volatility and returns in the cross-section of stocks. We show that the illiquidity and volatility of stocks increase with funding shocks, while contemporaneous returns decrease with funding shocks. The dispersions of...

In this paper, we formally show that the cross-sectional variance of stock returns is a consistent and asymptotically efficient estimator for aggregate idiosyncratic volatility. This measure has two key advantages: it is model-free and observable at any frequency. Previous approaches have used...

Seeing the firm as a nexus of activities and projects, we propose a characterization of the firm where variations in the market price of risk should induce adjustments in the firm's portfolio of projects. In a setting where managers disagree with respect to what investment maximizes value,...

We provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage ef fect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and implied volatility and find that implied volatilities are...

Theory predicts that funding conditions faced by financial intermediaries are an important limit to arbitrage. We identify and measure the value of funding liquidity from the cross-section of Treasury securities. To validate our interpretation, we establish linkages with funding conditions in...

We provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage ef fect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and implied volatility and find that implied volatilities are...