Do stocks bear a crash risk premium? We examine the empirical performance of the tail index measure from Kelly and Jiang (2014). We find that the tail index explains the cross-section of the discount rate component of returns, but not the cash-flow component. Moreover, in the time series the tail index is uncorrelated with theoretically motivated measures of aggregate uncertainty and systemic risk. In contrast, the tail index Granger causes and is Granger caused by the level of the term structure, and the slope of the term structure Granger causes tail risk. Received June 22, 2016; editorial decision December 23, 2017 by Editor Raman Uppal.

We show that inflation disagreement, not just expected inflation, has an impact on nominal interest rates. In contrast to expected inflation, which mainly affects the wedge between real and nominal yields, inflation disagreement affects nominal yields predominantly through its impact on the real side of the economy. We show theoretically and empirically that inflation disagreement raises real and nominal yields and their volatilities. Inflation disagreement is positively related to consumers’ cross-sectional consumption growth volatility and trading in fixed income securities. Calibrating our model to disagreement, inflation, and yields reproduces the economically significant impact of inflation disagreement on yield curves.