In this paper, we provide a new perspective for understanding cross-sectional properties of equity returns. We explicitly introduce financial leverage in a simple equity valuation model and consider the likelihood of a firm defaulting on its debt obligations as well as potential deviations from the absolute priority rule (APR) upon the resolution of financial distress. We show that financial le...

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Lévy processes can capture the behaviors of return innovations on a full range of financial securities. Applying stochastic time changes to the Lévy processes randomizes the clock on which the processes run, thus generating stochastic volatilities and stochastic higher return moments. Therefore, with appropriate choices of Lévy processes and stochastic time changes, we can capture the return dy...

This paper provides an exhaustive review of the literature on the characterization of financial time series. A stylized fact is a term in economics used to refer to empirical findings that are so consistent across markets that they are accepted as truth. Financial time series may be characterized by the following stylized facts. The autocorrelation of returns is largely insignificant. The distr...

Using data from a large German commercial bank, this paper focuses on three key issues in order to analyze the extent of financial advice in individual portfolios. First, we investigate whether collaboration with financial advisors attains to better performing portfolios. Second, we examine the effects of financial advisors on household investment mistakes. Third, we analyze whether accounts ru...

Experience shows that private or locally financed toll roads do not always reward their investors. This paper studies a case where investors in toll roads earned competitive returns on average but with wide variation in outcomes. The context is England and Wales during their early industrialization when private investors provided much of the capital to improve what were called turnpike trust ro...

We provide theory for calculating bounds on both the value of an individual’s human capital and the return on an individual’s human capital, given knowledge of the process governing earnings and financial asset returns. We calculate bounds using U.S. data on male earnings and financial asset returns. The large idiosyncratic component of earnings risk implies that bounds on values and returns ar...