investors because they exacerbate the illiquidity and volatility of securities, increase the dispersions of asset illiquidity … and volatility, and decrease contemporaneous returns. Our price-of-risk estimates are also robust to using mimicking …

components, namely continuous volatility and jump, and future market excess return. Building on quadratic variation theory, we … find that continuous volatility is a key driver of medium/long-run risk-return trade-offs while jumps lack predictive power …

law of one price, and is present in all but risk-neutral economies. We test the cross-sectional predictions of our theory … equity than for assets, and stronger for more levered firms — consistent with the theory. We test also the timeseries … implications of the theory. Time variation in asset ivol causes time variation in the option value of equity that translates into …