Stocks with increases in idiosyncratic risk tend to earn low subsequent returns for a few months. However, high idiosyncratic risk stocks eventually earn persistently high returns. These results are consistent with positively priced idiosyncratic risk and temporary underreaction to idiosyncratic risk innovations. Because risk levels and innovations are correlated, the relation between historical idiosyncratic risk and returns may reflect both risk premiums and underreaction and yield misleading inference regarding the price of risk. The results reconcile previous work offering conflicting evidence on the price of idiosyncratic risk and help to discriminate among explanations for the idiosyncratic risk-return relation

This paper evaluates whether economic uncertainty is consistent with the Merton (1973) intertemporal CAPM (ICAPM) theory. The economic uncertainty index of Jurado, Ludvigson and Ng (2015) consistently predicts a significant increase in stock market volatility. However, its innovation carries a statistically insignificant price of covariance risk in the cross-section, thereby failing to satisfy the Maio and Santa-Clara (2012) sign restrictions associated with the ICAPM. I also find robust evidence by using the level of the economic uncertainty index

We introduce a new hybrid measure of stock return tail covariance risk, motivated by the underdiversified portfolio holdings of individual investors, and investigate its cross-sectional predictive power. Our key innovation is that this covariance is measured across the left tail states of the individual stock return distribution, and not across those of the market return as in standard systematic risk measures. We document a positive and significant relation between hybrid tail covariance risk (H-TCR) and expected stock returns, with an annualized premium of 9%, in contrast to the insignificant or negative results for purely stock-specific or systematic tail risk measures

This paper provides the first systematic evidence on a recent industry innovation: money market funds offering multiple intraday NAV strikes and redemption windows. Emerging after the 2016 floating-NAV reforms, these multistrike funds hold safer, more liquid assets than traditional single-strike funds offering end-of-day redemptions, yet face substantially larger outflows during periods of market stress. Our findings point to a structural concentration of liquidity-sensitive investors in multistrike funds, revealing how fund microstructure influences run dynamics among sophisticated institutions. Despite evolving liquidity requirements, the core behavioral and structural differences we identify remain highly relevant for evaluating ongoing and future regulatory reforms

We show that several asset pricing models that rely on long-run risks imply that the state of the economy can be captured by factors derived from the price-dividend ratios of stock portfolios. We find two factors with small growth and large value tilts are important for this purpose, thereby relating the Fama-French model and the Bansal-Yaron and Merton intertemporal asset pricing models. As predicted by the model, these price-dividend ratio factors track consumption volatility and predict future consumption and stock dividends, and the covariance of returns with their innovations explains the cross-section of average returns of several stock portfolios