I study the term structure of one‐period expected returns on dividend claims with different maturity. I find that the slope of the term structure is countercyclical. The countercyclical variation is consistent with theories of long‐run risk and habit, but these theories cannot explain the average downward slope. At the same time, the cyclical variation is inconsistent with recent models constructed to match the average downward slope. More generally, the average and cyclicality of the slope are hard to reconcile with models with a single risk factor. I introduce a model with two priced factors to solve the puzzle.

We use data from aggregate stock and dividend futures markets to quantify how investors’ expectations about economic growth evolved across horizons following the outbreak of the novel coronavirus (COVID-19) and subsequent policy responses until July 2020. Dividend futures, which are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected growth using a forecasting model. We show how the actual forecast and the bound evolve over time. As of July 20th, our forecast of annual growth in dividends points to a decline of 8% in both the United States and Japan and a 14% decline in the European Union compared to January 1. Our forecast of GDP growth points to a decline of 2% in the United States and Japan and 3% in the European Union. The lower bound on the change in expected dividends is -17% in the United States and Japan and -28% in the European Union at the 2-year horizon. News about U.S. monetary policy and the fiscal stimulus bill around March 24 boosted the stock market and long-term growth but did little to increase short-term growth expectations. Expected dividend growth has improved since April 1 in all geographies.

We study the extent to which time-variation in market betas influence estimates of CAPM alphas. Given the observed variation in conditional market betas, market risk premia, and market variance, the required compensation for conditional market risk can, in theory, be as large as the unconditional equity premium. We implement the conditional CAPM using state-of-the-art methods in a broad global sample. We find that accounting for conditional risk helps explain the return on all the major anomalies we consider and that conditional risk explains two percentage points of alpha for value, investment, and momentum strategies in recent years.

We propose a duration‐based explanation for the premia on major equity factors, including value, profitability, investment, low‐risk, and payout factors. These factors invest in firms that earn most of their cash flows in the near future and could therefore be driven by a premium on near‐future cash flows. We test this hypothesis using a novel data set of single‐stock dividend futures, which are claims on dividends of individual firms. Consistent with our hypothesis, the expected Capital Asset Pricing Model alpha on individual cash flows decreases in maturity within a firm, and the alpha is not related to the above characteristics when controlling for maturity.

We study how perceptions of corporate responsibility influence policy preferences and the effectiveness of corporate communication when agents have imperfect memory recall. Using a new large-scale survey of U.S. citizens on their support for corporate bailouts, we first establish that the public demands corporations to behave better within society, a sentiment we label “big business discontent.” Using random variation in the order of survey sections and in the exposure to animated videos, we then show that priming respondents to think about corporate responsibility lowers the support for bailouts. This finding suggests that big business discontent influences policy preferences. Furthermore, we find that messages which paint a positive picture of corporate responsibility can “backfire,” as doing so brings attention to an aspect on which the public has negative views. In contrast, reframing corporate bailouts in terms of economic tradeoffs increases support for the policy. We develop a memory-based model of decision-making and communication to rationalize these findings.

We construct a dataset of firms’ discount rates (i.e., required returns to capital) and perceived cost of capital using corporate conference calls. The relation between discount rates and the cost of capital is far below the one-to-one mapping assumed in standard theory, as it takes many years for changes in the cost of capital to be incorporated into discount rates. This pattern leads to large and time-varying discount rate wedges that affect firm investment. Moreover, increasing discount rate wedges can account for the recent puzzle of “missing investment.” Cross-firm variation in market power and riskiness explains the evolution of wedges.

We test whether the low-risk effect is driven by leverage constraints and, thus, risk should be measured using beta versus behavioral effects and, thus, risk should be measured by idiosyncratic risk. Beta depends on volatility and correlation, with only volatility related to idiosyncratic risk. We introduce a new betting against correlation (BAC) factor that is particularly suited to differentiate between leverage constraints and behavioral explanations. BAC produces strong performance in the US and internationally, supporting leverage constraint theories. Similarly, we construct the new factor SMAX to isolate lottery demand, which also produces positive returns. Consistent with both leverage and lottery theories contributing to the low-risk effect, we find that BAC is related to margin debt while idiosyncratic risk factors are related to sentiment.