Covariance Risk, Mispricing, and the Cross Section of Security Returns

Inflation Risk and the Cross Section of Stock Returns

I establish that inflation risk is priced in the cross section of stock returns: Stocks that have low returns during inflationary times command a risk premium. I estimate a market price of inflation risk that is comparable in magnitude to the price of risk for the aggregate market. Inflation is therefore a key determinant of risk in the cross section of stocks. The inflation premium cannot be e...

Commodity Risk Factors and the Cross-Section of Equity Returns

The article examines whether commodity risk is priced in the cross-section of equity returns. Alongside a long-only equally-weighted portfolio of commodity futures, we employ as an alternative commodity risk factor a term structure portfolio that captures the propensity of commodity futures markets to be backwardated or contangoed. Equity-sorted portfolios with greater sensitivities to the two ...

Failure Risk and the Cross-Section of Hedge Fund Returns

On average, hedge funds experience slow failures rather than sudden crashes. I model a fund’s probability of failure using a dynamic logit regression and find that fund failures are predicted by even 7-month lagged information. Hedge funds fail slowly as investors withdraw their funds over a period of time because of poor performance. Also, longer share restriction periods and the presence of m...

Systematic risk and the cross-section of hedge fund returns

Idiosyncratic Consumption Risk and the Cross-Section of Asset Returns

This paper investigates the importance of idiosyncratic consumption risk for the cross-sectional variation in average returns on stocks and bonds. If idiosyncratic consumption risk is not priced, the only pricing factor in a multiperiod economy is the rate of aggregate consumption growth. We o®er evidence that the cross-sectional variance of consumption growth is also a priced factor. This demo...