Illiquidity and stock returns: cross-section and time-series effects

The Cross - Section of Stock Returns :

Inflation Risk and the Cross Section of Stock Returns

I establish that inflation risk is priced in the cross section of stock returns: Stocks that have low returns during inflationary times command a risk premium. I estimate a market price of inflation risk that is comparable in magnitude to the price of risk for the aggregate market. Inflation is therefore a key determinant of risk in the cross section of stocks. The inflation premium cannot be e...

Capital, Contracts and the Cross Section of Stock Returns∗

We present a tractable, static, general equilibrium model with multiple sectors in which firms offer workers incentive contracts and simultaneously raise capital in stock markets. Workers optimally invest in the stock market and at the same time hedge labor income risk. Firms rationally take agents’ portfolio decisions into account. In equilibrium, the cost of capital of each sector is endogeno...

Cash Flow, Consumption Risk and Cross Section of Stock Returns

This paper directly links the risk premium on an asset to two characteristics of its underlying cash flow: cash flow covariance with aggregate consumption; and cash flow duration, which measures the temporal pattern of the cash flow. Their impact on the cross-sectional variation of risk premia can be largely captured by a two-factor cash flow model. While cash flow covariance is of firstorder i...

Habit Formation and the Cross Section of Stock Returns¤

We develop an external habit persistence model where the time series of the aggregate portfolio and the cross section of stock returns are simultaneously studied and tested. By applying a slightly modi...ed version of the model of Campbell and Cochrane (1999), we obtain closed form solutions for individual securities prices and returns and a full characterizations of the dynamics of the risk-re...