This paper introduces measures of volatility and jump risk that are based on individual stock options to explain credit spreads on corporate bonds. Implied volatilities of individual options are shown to contain useful information for credit spreads and improve on historical volatilities when explaining the cross-sectional and time-series variation in a panel of corporate bond spreads. Both the level of individual implied volatilities and (to a lesser extent) the implied-volatility skew matter for credit spreads. Detailed principal component analysis shows that a large part of the time-series variation in credit spreads can be explained in this way.

We examine the pricing of both aggregate jump and volatility risk in the cross‐section of stock returns by constructing investable option trading strategies that load on one factor but are orthogonal to the other. Both aggregate jump and volatility risk help explain variation in expected returns. Consistent with theory, stocks with high sensitivities to jump and volatility risk have low expected returns. Both can be measured separately and are important economically, with a two‐standard‐deviation increase in jump (volatility) factor loadings associated with a 3.5% to 5.1% (2.7% to 2.9%) drop in expected annual stock returns.

Poison pills are among the most powerful antitakeover provisions, but studying their economic impact is challenging because of the obvious endogeneity concerns. We address the problem by studying U.S. states’ staggered adoption of poison pill laws (PPLs), which strengthen the right to adopt a pill (i.e., the shadow pill ) and increase the validity of visible pills. We document that PPLs make visible pill policy aligned with economic incentives, increasing pill adoption among firms with a high likelihood of takeover, but decreasing it among firms with low takeover likelihood. We also document that PPLs positively impact firm value, especially for innovative firms with more intangible assets.