To what extent does TF, the target Federal funds rate set by the Fed, influence other rates? There is lots of variation in rates unrelated to TF, and any effects of TF on rates dissipate quickly for longer maturities. For short rates, all the tests have interpretations in terms of: (i) a Fed that has the power to control rates and uses it, and (ii) a Fed that has little power over rates or chooses not to exercise its power. In the end, there is no conclusive evidence (here or elsewhere) on the role of the Fed versus market forces in the long-term path of interest rates.

Subscription Page Get access The Review of Asset Pricing Studies, Volume 3, Issue 1, June 2013, Page i3, https://doi.org/10.1093/rapstu/ras022 Published: 03 May 2013

This paper analyzes the Amihud (2002) measure of illiquidity and its role in asset pricing. It is shown first that the effect of illiquidity on asset pricing is clarified by using the turnover version of the Amihud measure and including firm size as a separate variable. When we decompose the Amihud measure into elements that correspond to positive (up) and negative (down) return days, we find that in general, only the down-day element commands a return premium. Further analysis of the up- and down-day elements using order flows shows that a sidedness variable, which captures the tendency for orders to cluster on the sell side on down days, is associated with a more significant return premium than the other components of the Amihud measure

Journal Article Subscription Page Get access The Review of Asset Pricing Studies, Volume 3, Issue 2, December 2013, Page i3, https://doi.org/10.1093/rapstu/ras023 Published: 11 November 2013

Journal Article Announcements Get access The Review of Asset Pricing Studies, Volume 3, Issue 2, December 2013, Page 179, https://doi.org/10.1093/rapstu/rat001 Published: 11 November 2013

We show that the stock market downturns of 2000–2002 and 2007–2009 have very different proximate causes. The early 2000s saw a large increase in the discount rates applied to profits by rational investors, while the late 2000s saw a decrease in rational expectations of future profits. We reach these conclusions by using a VAR model of aggregate stock returns and valuations, estimated both without restrictions and imposing the cross-sectional restrictions of the intertemporal capital asset pricing model (ICAPM). Our findings imply that the 2007–2009 downturn was particularly serious for rational long-term investors, whose losses were not offset by improving stock return forecasts as in the previous recession.

For sophisticated institutional investors, active management outperforms passive management by more than 180 bps per year in emerging markets and by about 50 bps in EAFE markets over the 1993 to 2008 period. In U.S. markets, active management underperforms. Consistent with these patterns in returns, institutions use active management more frequently in non-U.S. markets, particularly emerging markets. Finally, we provide some evidence that one contributor to the active outperformance is institutional constraints on flows to non-U.S. markets. Overall, our results suggest that the value of active management depends on the efficiency of the underlying market and the sophistication of the investor.

We derive new estimates of total wealth, the returns on total wealth, and the wealth effect on consumption. We estimate the prices of aggregate risk from bond yields and stock returns using a no-arbitrage model. Using these risk prices, we compute total wealth as the price of a claim to aggregate consumption. We find that U.S. households have a surprising amount of total wealth, most of it human wealth. This wealth is much less risky than stock market wealth. Events in long-term bond markets, not stock markets, drive most total wealth fluctuations. The wealth effect on consumption is small and varies over time with real interest rates.

Prior literature shows that implied volatility spreads between call and put options are positively related to future underlying stock returns. In this paper, however, we demonstrate that the volatility spreads are negatively related to future out-of-the-money call option returns. Using unique data on option volumes, we reconcile the two pieces of evidence by showing that option demand by sophisticated, firm investors drives the positive stock return predictability based on volatility spreads, while demand by less sophisticated, customer investors drives the negative call option return predictability. Overall, our evidence suggests that volatility spreads contain information about both firm fundamentals and option mispricing

The Review of Asset Pricing Studies (the RAPS) is ending its third year as a publishing journal, and now is a good time to talk about how we are doing and to review the state of our new journal. We are doing well. You, our authors, are submitting high quality papers, and you, our referees, are writing high quality reviews. Some of the world’s leading scholars serve on our editorial board. Oxford University Press, our publisher, is producing great looking volumes and managing various web-based forums for our journal’s dissemination. The Society of Financial Studies (SFS), which owns three journals including the RAPS, has been very supportive as well. None of this surprises me. When I agreed to be the first Editor of the new journal I knew that I would be working with top quality people and organizations. But, there have been some surprises. One surprise is that the