Essays in Asset Pricing and Macroeconomics

Abstract

This dissertation presents three essays. The first essay finds that investment strategies which generate “alphas” become endogenously risky by acquiring “betas” with respect to shocks that institutional arbitrageurs are exposed to. This essay provides both theoretical and empirical arguments. The second essay finds that exogenous shocks to liquidity demand cause a variation in the reward for aggregate liquidity provision. To draw this conclusion, this essay uses the daily temperature variation within the summers of the late 19th to early 20th century as a novel proxy for shocks to liquidity demand. The third essay finds that the GDP growth following an exogenous tax change that barely failed to become law is zero. This finding supports the narrative approach to the estimation of tax multipliers taken by Romer and Romer (2010).