We show theoretically that variable production costs lower systematic risk of firms' cash flows if capital and variable inputs are complementary in firms’ production and input prices are sufficiently pro-cyclical. In our dynamic model, this operating hedge effect is weaker for more profitable...

We examine the implications of short-run and long-run consumption risks on the momentum and long-term contrarian profits and the value premium in a unified economic framework. By introducing time-varying firm cash flow exposures to the short-run and long-run shocks in consumption growth, we find...

This paper examines the impact on asset prices from a reduction in the long-term capital gains tax rate using an equilibrium approach that considers both demand and supply responses. We demonstrate that the equilibrium impact of capital gains taxes reflects both the capitalization effect (i.e.,...