This paper highlights two new effects of credit default swap markets (CDS) in a general equilibrium setting. First, when firms' cash flows are correlated, CDSs impact the cost of capital{credit spreads{and investment for all firms, even those that are not CDS reference entities. Second, when...

In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a downward sloping term structure of low-frequency variance...

We study the price pressure and price discovery effects in the U.S. Treasury market by using a term structure model. Our model decomposes yield curve shifts into two components: a virtually permanent change related to order flow and a transitory, price pressure effect due to dealer inventories....

Suppose that asset pricing factors are just p-hacked noise. How much p-hacking is required to produce the 300 factors documented by academics? I show that, if 10,000 academics generate 1 factor every minute, it takes 15 million years of p-hacking. This absurd conclusion comes from applying the...

We compare the performance of time-series (TS) and cross-sectional (CS) strategies based on past returns. While CS strategies are zero-net investment long/short strategies, TS strategies take on a time-varying net-long investment in risky assets. For individual stocks, the difference between the...

We examine the relation between liquidity, volume, and volatility using a comprehensive sample of U.S. stocks in the post-decimalization period. For large stocks, effective spread and volume are positively related in the time series even after controlling for volatility, contrary to most...

Corporate bonds with large increases in implied volatility over the past month underperform those with large decreases in implied volatility by 0.6% per month. In contrast to An, Ang, Bali, and Cakici (2014) who show that implied volatility changes carry information about fundamental news, our...

On October 26, 2008, Porsche announced a largely unexpected domination plan for Volkswagen. The resulting short squeeze in Volkswagen's stock briefly made it the most valuable listed company in the world. We argue that this was a manipulation designed to save Porsche from insolvency and the...

I show that an asset pricing model for the equity claims of a value-maximizing firm can be constructed from its optimal financial contracting behavior. I study a dynamic contracting model in which firms trade off the costs and benefits of a given promise to pay external lenders in a specific...

We develop an estimator for publication bias and apply it to 156 hedge portfolios based on published cross-sectional return predictors. Publication bias adjusted returns are only 12% smaller than in-sample returns. The small bias comes from the dispersion of returns across predictors, which is...