We assess financial theory-based and machine learning-implied measurements of stock risk premia by comparing the quality of their return forecasts. In the low signal-to-noise environment of a one month horizon, we find that it is preferable to rely on a theory-based approach instead of engaging...

Directed links in cash flow networks affect the cross-section of risk premia through three channels. In a tractable consumption-based equilibrium asset pricing model, we obtain closed-form solutions that disentangle these channels for arbitrary directed networks. First, shocks that can propagate...

A common prediction of macroeconomic models of credit market frictions is that the tightness of financial constraints is countercyclical. As a result, theory implies a negative collateralizability premium; that is, capital that can be used as collateral to relax financial constraints provides...

We propose a long-run risk model with stochastic volatility, a time-varying mean reversion level of volatility, and jumps in the state variables. The special feature of our model is that the jump intensity is not affine in the conditional variance but driven by a separate process. We show that...

We show that time-varying volatility of volatility is a significant risk factor which affects the cross-section and the time-series of index and VIX option returns, beyond volatility risk itself. Volatility and volatility-of-volatility measures, identified modelfree from the option price data as...

Directed links in cash flow networks affect the cross-section of price exposures and market prices of risk in equilibrium. In an asset pricing model featuring mutually exciting jumps, we measure directedness through an asset's shock propagation capacity (spc). In the model, we prove: (i) Cash...

Standard applications of the consumption-based asset pricing model assume that goods and services within the nondurable consumption bundle are substitutes. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute energy consumption by...

In this paper we study the equilibrium in a heterogeneous economy with two groups of investors. Over-confident experts incorrectly assume that their signal for the drift of the dividend process is correlated with the true drift, but interpret the signal otherwise perfectly. Rational laymen avoid...

Variance contracts permit the trading of 'variance risk', i.e. the risk that the (squared) volatility of stock returns changes randomly over time. We discuss why investors might want to trade this type of risk, and why they might prefer a variance contract to standard calls and puts for this...