Asset pricing models predict a strong connection between the real risk-free interest rate and the macroeconomy, but prior research finds little empirical support for the connection when examining expected growth. This paper documents a robust relation between the interest rate and macroeconomic uncertainty (i.e., conditional variance). Consistent with precautionary savings, high uncertainty is associated with a low interest rate using numerous data sources, time periods, and measures. A relation between habit and the interest rate disappears after including uncertainty, and the relation is stronger using long-run uncertainty. The results imply that analyses of the interest rate without uncertainty are seriously incomplete.

Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call “juicing.” Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds with unsophisticated investors. This behavior is consistent with an underlying investor demand for dividends, but is hard to explain by taxes or need for income, as funds can generate equivalent tax-free distributions by returning capital. Juicing is costly to investors through higher turnover and increased taxes of 0.57% to 1.52% of fund assets per year.