Traditionally and understandably, the microscope of market microstructure has focused on attributes of single assets. Little theoretical attention and virtually no empirical work has been devoted to common determinants of liquidity nor to their empirical manifestation, correlated movements in...

We provide a model with overconfident risk neutral investors, and therefore no risk premia, in which a price-based portfolio such as HML earns positive expected returns and loads on fundamental macroeconomic variables. Furthermore, loadings on such portfolios are proxies for mispricing, and...

We explore the sharp uptrend in trading activity during recent years. Higher turnover has been associated with more frequent smaller trades, which have progressively formed a larger fraction of trading volume over time. Evidence indicates that secular decreases in trading costs have influenced...

The identical cash flow rights of Chinese A and B shares provide a natural experiment that allows us to explore how investor clienteles affect stock return patterns. Chinese domestic retail investors are responsible for the majority of trades in A shares, while foreign institutional investors...

Can the degree of predictability found in the data be explained by existing asset pricing models? We provide two theoretical upper bounds on the R-squares of predictive regressions. Using data on the market and component portfolios, we find that the empirical R-squares are significantly greater...

We study the effect of options trading volume on the value of the underlying firm after controlling for other variables that may affect firm value. The volume of options trading might have an effect on firm value because it helps to complete the market (allocational efficiency) and because the...

We propose a protocol for identifying genuine risk factors. The underlying premise is that a risk factor must be related to the covariance matrix of returns, must be priced in the cross-section of returns, and should yield a reward-to-risk ratio that is reasonable enough to be consistent with...

While existing asset pricing studies focus on macroeconomic variables to predict stock market risk premium, we find that an aggregate index of corporate activities has substantially greater predictive power both in- and out-of sample, and yields much greater economic gain for a mean-variance...

Recent empirical studies suggest that demand and supply factors have important effects on bond yields. Both market segmentation and preferred habitat hypothesis are used to explain these demand and supply effects. In this paper, we use an affine preferred-habitat term structure model and the...

Recent empirical studies suggest that demand and supply factors have important effects on bond yields. Both market segmentation and preferred habitat hypothesis are used to explain these demand and supply effects. In this paper, we use an affine preferred-habitat term structure model and the...