We document that speed of information dissemination within mutual fund families positively affects fund performance. This suggests that the resultant benefits of higher information precision far outweigh free-riding costs associated with fast internal dissemination. The performance effect is stronger when information travels across managers from different, rather than the same, styles. This is consistent with fast information diffusion aggregating complementary insights that sharpen information precision, but also with fewer free-riding opportunities among managers from different styles. Managers rationally exploit the resultant higher information precision by trading more, relying less on public information, and investing differently than unaffiliated peers.

This paper examines the effects of macro-level disagreement on the cross-section of stock returns. Using forecast dispersion measures from the Survey of Professional Forecasters database as proxies for macro disagreement, I find that high macro beta stocks earn lower future returns relative to low macro beta stocks following high macro disagreement states. This negative relation between returns for macro factors and macro disagreement is robust and exists for a large set of macroeconomic factors, suggesting that high macro beta stocks are overvalued compared with low macro beta stocks due to their greater sensitivity to aggregate disagreement

Journal Article Subscription Page Get access The Review of Asset Pricing Studies, Volume 6, Issue 2, December 2016, Page i3, https://doi.org/10.1093/rapstu/rav017 Published: 15 November 2016

We study the implications of creative destruction on asset prices. We develop a general equilibrium model of endogenous firm creation and destruction in which “incremental” innovation by incumbents and “radical” innovation by entrants drive productivity improvements. Firms’ incentives to innovate generate time-varying economic growth and countercyclical economic uncertainty. The model matches key properties of consumption and asset prices, as well as novel facts on the process of creative destruction in the United States obtained using a sample of patents from 1975–2013. We show that the interplay between incumbents and entrants is an important determinant of risks priced in the financial markets.

We propose a novel regime-switching model to study correlation asymmetries in international equity markets. We decompose returns into frequent-but-small diffusion and infrequent-but-large jumps and derive an estimation method for many countries. We find that correlations due to jumps, not diffusion, markedly increase in bad markets, leading to correlation breaks during crises. Our model provides a better description of correlation asymmetries than do GARCH, copula, and stochastic volatility models. Good and bad regimes are persistent. Regime changes are detected rapidly, and risk diversification allocations are improved. Asset allocation results in- and out-of-sample are superior to other models, including the 1/N strategy.

We analyze the contribution of leisure preferences to a model of long-run risks in leisure and consumption growth. The marginal utility of consumption is affected by short- and long-run risks in leisure under nonseparable and recursive preferences. We match equity risk premia and macroeconomic moments with plausible coefficients of relative-risk aversion. Additionally, the model generates a less negative to positively sloped average real yield curve, depending on the elasticity of substitution between the consumption of nondurables and services and leisure. Further, the incorporation of leisure in utility allows us to derive model implications for the return on human capital.

We propose a dynamic asset pricing model in which two assets with identical cash flows can trade at different prices not only because of differences in liquidity but counterparty risk. Counterparty risk reduces lenders or borrowers’ willingness to supply funds and collateral, incentives to shortsell and lend, and the likelihood for new bonds to be on special, thereby narrowing on-/off-the-run spreads and affecting asset prices in spot markets. Consistent with this prediction, we find that on-/off-the-run spreads are low when counterparty risk is high and this relationship is much stronger during the financial crisis.

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

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