[We investigate the asset pricing and macroeconomic implications of the ratio of new orders (NO) to shipments (S) of durable goods. NO/S measures investment commitments by firms, and high values of NO/S are associated with a business cycle peak. We find that NO/S proxies for a short-horizon component of risk premia not identified in prior work. Higher levels of NO/S forecast lower excess returns on equities and many types of bonds, at horizons from one month to one year. These effects are generally robust to the inclusion of common return predictors and are significant on an out-of-sample basis as well. We also address the term structure of risk premia by constructing a similar ratio to measure longer-term investment commitments, which predicts returns primarily at longer horizons.]

[We analyze auctions for the settlement of credit default swaps (CDS) theoretically and evaluate them empirically. The requirement to settle in cash with an option to settle physically leads to an unusual two-stage process. In the first stage, participants affect the amount of the bonds to be auctioned off in the second stage. Participants in the second stage may hold positions in derivatives on the assets being auctioned. We show that the final auction price might be either above or below the fair bond price because of strategic bidding on the part of participants holding CDS. Empirically, we observe both types of outcomes, with undervaluation occurring in most cases. We find that auctions undervalue bonds by an average of 6% on the auction day. Undervaluation is related positively to the amount of bonds exchanged in the second stage of the auction, as predicted by the theory. We suggest modifications of the settlement procedure to minimize the underpricing.]

[Firm-specific information can affect expected returns if it affects investor uncertainty about risk-factor loadings. We show that a stock's expected return is decreasing in factor-loading uncertainty, controlling for the average level of its factor loading. When loadings are persistent, learning by investors can induce time-series variation in price-dividend ratios, expected returns, and idiosyncratic volatility, even when the aggregate risk-premium is constant and fundamental shocks are homoscedastic. Consistent with our predictions, we estimate that average annual returns of a firm with the median level of factor-loading uncertainty are 400 to 525 basis points lower than a comparable firm without factor-loading uncertainty.]

[Using proprietary energy futures position data, we provide evidence that mean hedger profits are negative whereas speculator (especially hedge fund) profits are positive, that traders (whether speculators or hedgers) who hold net positions opposite in sign to likely hedgers in aggregate have higher profits than traders whose net positions align with likely hedgers, and that profits on long positions vary inversely with inventories and directly with price volatility. These findings are consistent with the risk premium, hedging pressure, and modern theory of storage hypotheses, respectively. Further, our findings suggest that commodity futures momentum may be due largely to hedging pressure.]

This paper investigates the behavior of the ratio of new orders to shipments of durable goods (NO/S). High levels of NO/S are associated with a business cycle peak. They predict a short-run increase in employment and fixed and inventory investment but a dramatic long-run decline in employment, fixed investment, inventories, and GDP as a whole. We also find that NO/S captures time-varying risk premia. Higher levels of NO/S forecast lower excess returns on a broad set of assets, including equities, longand intermediate-term Treasury bonds, and high- and low-grade corporate bonds, at horizons from one month to one year. These effects are robust to the inclusion of all common return predictors. We then construct an equilibrium model of investment with time to plan and a countercyclical price of risk which implies that the ratio of new orders to shipments is procyclical and predicts lower excess returns.

We analyze auctions for the settlement of credit default swaps (CDS) theoretically and evaluate them empirically. The requirement to settle in cash with an option to settle physically leads to an unusual two-stage process. In the first stage, participants affect the amount of the bonds to be auctioned off in the second stage. Participants in the second stage may hold positions in derivatives on the assets being auctioned. We show that the final auction price might be either above or below the fair bond price because of strategic bidding on the part of participants holding CDS. Empirically, we observe both types of outcomes, with undervaluation occurring in most cases. We find that auctions undervalue bonds by an average of 6% on the auction day. Undervaluation is related positively to the amount of bonds exchanged in the second stage of the auction, as predicted by the theory. We suggest modifications of the settlement procedure to minimize the underpricing.

Using proprietary energy futures position data, we provide evidence that mean hedger profits are negative whereas speculator (especially hedge fund) profits are positive, that traders (whether speculators or hedgers) who hold net positions opposite in sign to likely hedgers in aggregate have higher profits than traders whose net positions align with likely hedgers, and that profits on long positions vary inversely with inventories and directly with price volatility. These findings are consistent with the risk premium, hedging pressure, and modern theory of storage hypotheses, respectively. Further, our findings suggest that commodity futures momentum may be due largely to hedging pressure.

Firm-specific information can affect expected returns if it affects investor uncertainty about risk-factor loadings. We show that a stock's expected return is decreasing in factor-loading uncertainty, controlling for the average level of its factor loading. When loadings are persistent, learning by investors can induce time-series variation in price-dividend ratios, expected returns, and idiosyncratic volatility, even when the aggregate risk-premium is constant and fundamental shocks are homoscedastic. Consistent with our predictions, we estimate that average annual returns of a firm with the median level of factor-loading uncertainty are 400 to 525 basis points lower than a comparable firm without factor-loading uncertainty.