I study, both empirically and theoretically, the economic and financial consequences of corporate lobbying. Firms lobby politicians to increase their share of government contracts, but political competition creates firm-level risk, inflating their cost of capital and reducing their incentive to invest in research and development (R&D). I document an annual 6–8% return premium for stocks of high-lobbying firms, which compensates investors for political risk. An estimated model in which firms can lobby and innovate and investors are risk averse replicates key features of corporate lobbying in the U.S., including the well-established paradox that lobbying contributions are small relative to the policies at stake. The model predicts that if investors ceased seeking compensation for political risk, R&D investment would increase by 6% and the innovation rate by 0.4% points. The risk-premium costs of lobbying are quantitatively and economically important even if the resources “wasted” on lobbying are objectively small.

We study the price discovery process on FOMC days. For several asset classes, we find that price movements around the post-meeting statement release are strong predictors of price movements around the subsequent press conference. The correlation is 58% for medium-term Eurodollar futures and 44% for the S&P500 index. We then time-stamp the words pronounced in press conference videos and align these words with high-frequency financial data. Minutes in which the chairman discusses changes in the newly issued policy statement underlie the positive correlation. We discuss potential explanations and consider the implications of our findings for asset pricing and monetary economics.

We introduce a present-value identity relating a firm’s market value to expected future markups, output growth, discount rates, and investments. Distinguishing current from expected markups reveals five empirical facts: (1) Expected markups account for half the rise in U.S. firm values since 1980. (2) The rise in aggregate expected markups reflects market-share reallocation toward high-expected-markup firms and within-firm increases. (3) Expected markups are linked to intangible investments. (4) They relate negatively to discount rates over time but (5) positively to abnormal returns across firms. Finally, variation in long-term expected markups is primarily associated with asset prices rather than current markups.

We estimate risk-free interest rates unaffected by convenience yields on safe assets. We infer them from risky asset prices without relying on any specific model of risk. We obtain interest rates and implied convenience yields with maturities up to three years at a minutely frequency. Our estimated convenience yield on Treasuries equals about 40 basis points, is larger below three months maturity, and quadruples during the financial crisis. In high-frequency event studies, conventional and unconventional monetary stimulus reduces our rates more than the corresponding Treasury yields, thus broadly affecting rates even outside the narrow confines of the fixed-income market.

We quantify the impact of perceived cancer risk on housing values using widely advertised national reclassifications of chemical carcinogenicity in the United States. Combining these information events with an empirical design that compares changes in house values closer to affected toxic plants against those farther away isolates the effect of cancer risk news from other local factors. Focusing on plants previously emitting reclassified carcinogenic chemicals, we estimate a 1–2% decline in housing values within a 3-mile radius compared to those located farther away. The effects are stronger in areas with higher media presence underscoring the role of salience as a mechanism.

A growing literature shows that credit indicators forecast aggregate real outcomes. While researchers have proposed various explanations, the economic mechanism behind these results remains an open question. In this paper, we show that a simple, frictionless model explains empirical findings commonly attributed to credit cycles. Our key assumption is that firms have heterogeneous exposures to underlying economy-wide shocks. This leads to endogenous dispersion in credit quality that varies over time and predicts future excess returns and real outcomes. Received August 7, 2017; editorial decision June 26, 2018 by Editor Stijn Van Nieuwerburgh.