Essays in Financial Economics

Abstract

This dissertation is composed of three essays in financial economics. Each essay documents a set of different empirical asset pricing facts and proposes a theoretical explanation. The first addresses the persistence of mispricing in financial markets. It puts forward a theoretical explanation based on investors not begin able to distinguish between price changes due to fire sales and those due to payoff relevant information. The second essay documents a large change in the correlation between exchange rates and equity market returns since the Great Recession, and shows that this change can be accounted for by a lower responsiveness of interest rate spreads to risk premia in this period. The third examines the well known fact that equity prices are highly sensitive to monetary policy news. This final essay shows that this sensitivity can be quantitatively accounted for in a simple New Keynesian macroeconomic model augmented with habit formation preferences.