This paper examines if (and how) continuous-time trading renders dynamically-complete a financial market in which the underlying risk process is a Brownian motion and the securities pay dividends that are proportional to geometric Brownian motions. A sufficient condition, that the instantaneous...

Using a general equilibrium model with endogenous growth, I show that risk to human capital leads to a “Value” premium in equity returns. In particular, firms with relatively more firm-specific human capital or more positive covariance between asset growth and returns on human capital are...

We propose a general equilibrium model to study the link between the cross section of expected returns and book-to-market characteristics. We model two primitive assets: value assets and growth assets that are options on assets in place. The cost of option exercise, which is endogenously...

In this review we survey the recent research on the fundamental determinants of stock returns. These studies explore how firms' systematic risk and their investment and production decisions are jointly determined in equilibrium. Models with production provide insights into several types of...

We quantify the effect of financial leverage on stock return volatility in a dynamic general equilibrium economy with debt and equity claims. We study the effects of financial leverage on the market portfolio, and on a small firm with idiosyncratic and market risk. In an economy with both a...

The covariance between US Treasury bond returns and stock returns has moved considerably over time. While it was slightly positive on average in the period 1953--2009, it was unusually high in the early 1980''s and negative in the 2000''s, particularly in the downturns of 2000--02 and 2007--09....

Even though stock returns are not highly autocorrelated, there is a spurious regression bias in predictive regressions for stock returns related to the classic studies of Yule (1926) and Granger and Newbold (1974). Data mining for predictor variables interacts with spurious regression bias. The...