U.S. financial institutions have traditionally insured the typical U.S. household against persistent shocks to U.S. inflation through the U.S. mortgage market. The bond risk premium is effectively the price of long-run inflation risk insurance charged by these U.S. intermediaries. Starting in...

We show that firms' idiosyncratic volatility in returns and cash flows obeys a strong factor structure. We find that the stocks of firms with large, negative common idiosyncratic volatility (CIV) factor betas earn high average returns. The CIV beta quintile spread is 6.4% per year. To explain...

We find that average returns to currency carry trades decrease signicantly as the maturity of the foreign bonds increases, because investment currencies tend to have small local bond term premia. The downward term structure of carry trade risk premia is informative about the temporal nature of...

The cross-section of returns of stock portfolios sorted along the book-to-market dimension can be understood with a one-factor model. The factor is the nominal bond risk premium, best measured as the Cochrane-Piazzesi (2005, CP) factor. This paper ties the pricing of stocks in the cross-section...

banks.

Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increase in the importance of organizational capital in production, (2) the increase in managerial income inequality, and (3) the increase in payouts to the owners. There is a unified explanation for...

We build portfolios of monthly currency forward contracts sorted on forward discounts. The spread between returns on the lowest and highest interest rate currency portfolios is more than 5 percentage points per annum between 1983 and 2007 after taking into account bid-ask spreads. The annualized...

We show that the price of a Treasury bond and an inflation-swapped TIPS issue exactly replicating the cash flows of the Treasury bond can differ by more than $20 per $100 notional. Treasury bonds are almost always overvalued relative to TIPS. Total TIPS-Treasury mispricing has exceeded $56...

Investors in option markets perceive the financial sector to be too-systemic-to-fail. They price in a substantial collective government bailout guarantee, which puts a floor on the value of the financial sector as a whole, but not on its individual members. The guarantee makes put options on the...

This paper studies the effects of the joint distribution of the stock financial expertise and financial wealth on asset prices. By modeling financial expertise as a stock, we are able to incorporate economic ideas from capital theory as well as industrial organization into a model with slow...