This paper develops the relation between the real rate of return on the stock market and changes in the price level using a multiperiod economy with production. The observed relation between real ex post stock returns and inflation is shown to be consistent with equilibrium in an economy with rational investors. The relation between expected real returns and expected inflation is shown to depend on the form of the economy's production function and on the form of investor preferences. When the production function exhibits stochastic constant returns to scale, the model explains the negative relation between expected real returns and expected inflation which has frequently been observed in empirical studies.

This paper develops the relation between the real rate of return on the stock market and changes in the price level using a multiperiod economy with production. The observed relation between real ex post stock returns and inflation is shown to be consistent with equilibrium in an economy with rational investors. The relation between expected real returns and expected inflation is shown to depend on the form of the economy's production function and on the form of investor preferences. When the production function exhibits stochastic constant returns to scale, the model explains the negative relation between expected real returns and expected inflation which has frequently been observed in empirical studies.

The difference between the forward rate of interest implicit in the term structure of interest rates and the expected future spot rate is usually referred to as a liquidity premium. This paper examines the determinants of the liquidity premiums implicit in the term structure of real interest rates using a three-date economy with production. The sign of the liquidity premium is characterized in terms of the parameters that describe the uncertainty in the economy. The results suggest that the liquidity premiums implicit in the real term structure of interest rates may sometimes be negative.

The difference between the forward rate of interest implicit in the term structure of interest rates and the expected future spot rate is usually referred to as a liquidity premium. This paper examines the determinants of the liquidity premiums implicit in the term structure of real interest rates using a three-date economy with production. The sign of the liquidity premium is characterized in terms of the parameters that describe the uncertainty in the economy. The results suggest that the liquidity premiums implicit in the real term structure of interest rates may sometimes be negative.

We examine stock-market volatility around the quarterly expirations of stock index futures contracts and nonquarterly expirations of stock index options, using estimates of the volatility implicit in the option prices. The option prices reflect increases in the volatility of the underlying stock indexes around both quarterly and nonquarterly expiration dates. Analysis of the residual returns on index options provides evidence consistent with an unexpected increase in market volatility around expiration dates.

This article examines the relationship between the volatility of the crude oil futures market and changes in initial margin requirements. To closely match changes in futures market volatility with the corresponding changes in margin requirements, we infer the volatility of the futures market from the prices of crude oil futures options contracts. Using a mean-reverting diffusion process for volatility, we show that changes in margin policy do not affect subsequent market volatility.

This article examines the relationship between the volatility of the crude oil futures market and changes in initial margin requirements. To closely match changes in futures market volatility with the corresponding changes in margin requirements, we infer the volatility of the futures market from the prices of crude oil futures options contracts. Using a mean-reverting diffusion process for volatility, we show that changes in margin policy do not affect subsequent market volatility.

This paper develops and tests procedures for ranking the performance of security analysts based on the timeliness of their earnings forecasts, the abnormal trading volume associated with these forecasts, and forecast accuracy. Our framework provides an objective assessment of analyst quality that differs from the standard approach, which uses survey evidence to rate analysts. We find that lead analysts identified by our measure of forecast timeliness have a greater impact on stock prices than follower analysts. Further, we find that performance rankings based on forecast timeliness are more informative than rankings based on abnormal trading volume and forecast accuracy. We also present evidence that analyst's forecast revisions are correlated with recent stock price performance, suggesting that security analysts use publicly available information to revise their earnings forecasts.

Empirical support for the hypothesis that closed-end fund discounts are related to overhanging tax liabilities has been mixed. We introduce a new approach to testing this hypothesis by examining changes in discount levels following distributions of dividends and capital gains. Since distributions reduce future shareholder tax liabilities, the tax liability hypothesis implies that closed-end fund discounts should decline following distributions. Focusing on changes in discounts isolates this tax effect by eliminating the impact of other fund-specific factors on discount levels. Our results support the tax liability hypothesis, showing that short-run fluctuations in discounts are directly affected by taxable distributions.