We document that properly scaled deviations from put-call parity estimate the contribution of market frictions to expected returns (CFER) accurately, by means of a non-parametric theoretically founded identification strategy. The required conditions are that our estimator predicts the underlying...

We zero in on the expected returns of long-short portfolios based on 120 stock market anomalies by accounting for (1) effective bid-ask spreads, (2) post-publication effects, and (3) the modern era of trading technology that began in the early 2000s. Net of these effects, the average anomaly's...

We estimate the premium associated with time-varying market betas without using rolling betas or instruments. Instead, we use a new conditional-risk factor, which is a market timing strategy defined as the unexpected return on the market times the ex ante price of risk. The factor is a powerful...

Using a news-based index of economic policy uncertainty (EPU), we find that EPU is positively associated with credit default swap (CDS) spreads and negatively associated with the number of liquidity providers in the CDS market. A 10% increase in EPU leads to an 8.4% increase in CDS spreads and a...

I document that the term structure of one-period expected returns on dividend-claims is counter-cyclical: it is downward sloping in good times, but upward sloping in bad times. The counter-cyclical variation is consistent with theories of long-run risk and habit, but these theories cannot...

We examine empirically and theoretically the relation between firms' risk and their distance to consumers in a production network. We document two novel facts: firms that are further away from consumers have higher risk premia and higher exposures to aggregate productivity. We quantitatively...

We test the pricing of the conditional systematic risk (β) of IML, a traded liquidity factor of the return premium on illiquid-minus-liquid stocks, with its risk premium varying over time. We find a positive and significant risk premium on conditional IML β, which rises in times of financial...

This paper shows that the risk-bearing capacity of U.S. securities brokers and dealers is a strong determinant of risk premia in commodity markets. Commodity derivatives are the principal instrument used by producers and consumers of commodities to hedge against commodity price risk....

This paper examines the effect of collateralization and mutualization (of losses) on credit default swaps (CDS) premium in a context of high counterparty risk operating through an opaque derivatives market. This setup certainly makes clearing practices to affect the size of positions, recovery...

We model the S&P500 index options dynamics using the CGMY distribution, with independent "up" and "down" return jumps, and diffusive jump intensities. Allowing the up and down parts to be separately parameterised accounts for the dynamic smirk effect, without correlation between returns and...