We develop a methodology to decompose the conditional market risk premium and risk premia on higher-order moments of excess market returns into components related to contingent claims on down, up, and moderate market returns. The decompositions do not depend on assumptions about investor...

The use of futures exchange contracts instead of forwards completes the maturity spectrum of the correlation between the spot yield and the premium. We find that the forward premium puzzle (FFP) depends significantly on the maturity horizon of the futures contract and the choice of sampling...

This paper studies a dynamic equilibrium model of asset prices in a partially observable exchange economy. It shows that the precautionary savings motive in response to estimation uncertainty can dominate the risk aversion effect, resulting in the reduction of the equity premium over short...

We decompose the variance risk premium into upside and downside variance risk premia. These components reflect market compensation for changes in good and bad uncertainties. Their difference is a measure of the skewness risk premium (SRP), which captures asymmetric views on favorable versus...

Defining extreme liquidity as the tail of the illiquidity for all stocks, I propose a direct measure of market-wide extreme liquidity risk and find that it is priced cross-sectionally in the U.S. Between 1973 and 2014, the stocks with low extreme liquidity risk beta earned value-weighted average...

In this paper, another factor that affects equity risk premium is derived from a simple classical monetary model, which basically adds back labor-leisure to a simple consumption-only consumption-based asset pricing model. If every present/future good is traded at time t=0, just as in traditional...

Risk-averse expected utility maximization implies that the pricing kernel must be a non-increasing function of aggregate wealth. However, empirical research has found that the pricing kernel frequently displays a locally increasing portion in aggregate wealth. This is known as the pricing kernel...

This paper builds a real-options model of the firm with stochastic volatility to shed new light on the value premium, financial distress, and credit spread puzzles. Since the equity of growth firms and financially distressed firms have embedded options, such securities hedge against volatility...

Recent research argues that uncertainty about future stock borrowing fees is an impediment to short-selling and it explains the risk-adjusted performance of short strategies. One possible mechanism is that borrowing fee risk carries a risk premium. Since the present value of the uncertain...