The Research Page of Pietro Veronesi

Anne Ryan,

Research by Topics:

The Credit Risk Laboratory

Governments and Asset Prices

Tech “Bubbles”

Stock Return Predictability

Learning in Financial Markets

Information and Stock Prices


Recent Working Papers

Political Cycles and Stock Returns (with Lubos Pastor), January 2017. Internet Appendix to accompany the paper.

        Political cycles generated by time-varying risk aversion explain why average returns are higher under Democratic presidencies.

Habits and Leverage (with Tano Santos), updated June 2017. OnLine Appendix to accompany the paper.

        Heterogeneous habit preferences generate many of the stylized facts about leverage, consumption, and asset prices.

Option-Based Credit Spreads (with Christopher L. Culp and Yoshio Nozawa), Revised November 2016. Technical Appendix to accompany the paper.
Revise & Resubmit at the American Economic Review (2nd round)

        We introduce the novel concept of pseudo firms, i.e. fictitious firms with assets and liabilities that are composed of traded securities and thus observable. They are ideal empirical benchmarks for the anlysis of credit risk.

Find data and much more material at the new Credit Risk Laboratory

Winner of the 2015 AQR Insight Award , First Prize.

Published and Forthcoming Papers

Income Inequality and Asset Prices under Redistributive Taxation (with Lubos Pastor), January 2016. (Prepared for the Carnegie-Rochester-NYU conference on ``Political Economy, Public Policy, and Financial Markets,'' November 13 - 14, 2015 ). Journal of Monetary Economics (forthcoming). Internet Appendix to accompany the paper.

Watch a five-minute VIDEO PRESENTATION of the paper (with Lubos' beautiful voice)

The Price of Political Uncertainty: Theory and Evidence from the Option Market (with Bryan Kelly and Lubos Pastor), Revised July 2015. The Journal of Finance (forthcoming). Internet Appendix to accompany the paper.

Short piece and video from the Beker Friedman Institute

Chicago Booth Capital Ideas ; Video

VOX Article

Investor's and Central Bank's Uncertainty Embedded in Index Options (with Alexander David), The Review of Financial Studies, 2014, 27, (6): 1661-1716. Technical Appendix

Political Uncertainty and Risk Premia (with Lubos Pastor) Journal of Financial Economics, December 2013, 110, 3, 520--545 Technical Appendix; Typesetting error in published version

Featured in the Wall Street Journal (December 6, 2012), Wall Street Journal (November 5, 2011), Bloomberg (November 9, 2011), and Gewinn (January 2012; in German).

Related VOX Article: Explaining the puzzle of high policy uncertainty and low market volatility (May 25, 2017);

Featured in the Wall Street Journal (May 24, 2017); Frankfurter Allgemeine Zeitung (May 25, 2017); Bloomberg (May 25, 2017)

What Ties Return Volatilities to Price Valuations and Fundamentals?, (joint with Alexander David), Journal of Political Economy , Summer 2013, 121, 4, 682 -- 746. On-Line Appendix

Featured in the Bloomberg (February 23, 2012).

Uncertainty about Government Policy and Stock Prices, (joint with Lubos Pastor) Journal of Finance, August 2012, 64, 4, 1219-1264. Technical Appendix.

Winner of the 2012 Journal of Finance - Smith Breeden Distinguished Paper Prize

Featured in Fox Business (June 29, 2010).

Stock Based Compensation and CEO (Dis)Incentives (with Effi Benmelech and Gene Kandel) Quarterly Journal of Economics, 2010, 125(4) 1769-1820 Technical Appendix

Paulson's Gift (with Luigi Zingales), Journal of Financial Economics, September 2010, 97, 3, 339-368

Featured in the Chicago Booth Capital Ideas (October 2010) and WSJ Blog (November 2, 2009).

Habit Formation, the Cross Section of Stock Returns and the Cash Flow Risk Puzzle (with Tano Santos). Journal of Financial Economics. November 2010, 98, 2, 385 - 413.

Learning in Financial Markets (with Lubos Pastor), (survey article) 2009; Annual Review of Financial Economics, 1, 361 -- 381

Technological Revolutions and Stock Prices (with Lubos Pastor), 2009, American Economic Review,99, 1451--1483. Technical Appendix.

Winner of the Barclays Global Investors Prize for the Best Paper at the European Finance Association Conference.

Featured in the Chicago GSB Capital Ideas (October 2007) and the Economist Intelligence Unit.

Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability (with Lubos Pastor and Lucian Taylor), 2009, Review of Financial Studies ,22, 3005--3046. Technical Appendix.

Winner of the NASDAQ Award for the best paper on capital formation at the 2008 Western Finance Association conference.

Featured in the Forbes Magazine (February 12, 2007).

Was There a NASDAQ Bubble in the Late 1990s? (with Lubos Pastor), 2006, Journal of Financial Economics 81, 61 - 100; Technical Appendix.

Winner of the Fama/DFA Prize for the best paper in the Journal of Financial Economics in the Areas of Capital Markets and Asset Pricing (second prize).

Labor Income and Predictable Stock Returns (with Tano Santos), Review of Financial Studies, 19, Spring 2006 (Lead Article).

Rational IPO Waves, (with Lubos Pastor), Journal of Finance, 60, August 2005, 1713 – 1757.

Nominated for 2005 Smith Breeden Prize for best paper on the Journal of Finance.


Understanding Predictability, (with Lior Menzly and Tano Santos), Journal of Political Economy, 112, 1, February 2004 (Lead Article), (link to JPE Electronic Edition.) Reprinted in “Financial Markets and the Real Economy”, John Cochrane (ed.) Edward Elgar Publishing Inc. 2006


The Peso Problem Hypothesis and Stock Market Returns, Journal of Economic Dynamics and Control, 28, 4, January 2004.


Stock Valuation and Learning about Profitability, (with Lubos Pastor), Journal of Finance , 58, 5, October 2003. (Lead Article). Small inconsequential Typo

Winner of the Smith Breeden First Prize for the Best Paper in asset pricing on the Journal of Finance in 2003.


Rational Panics and Stock Market Crashes (with Gadi Barlevy), Journal of Economic Theory, 110, 2, June 2003, Pages 234-263.


How Does Information Quality Affect Stock Returns? Journal of Finance , 55, 2, April 2000. 

Nominated for 2000 Smith Breeden Prize for best paper on the Journal of Finance.


Information Acquisition in Financial Markets (with Gadi Barlevy), Review of Economic Studies, January 2000. Erratum

Stock Market Overreaction to Bad News in Good Times: A Rational Expectations Equilibrium Model, Review of Financial Studies , 12, 5, Winter 1999.

Winner of the Barclays Global Investors / Michael Brennan Prize for the Best Paper on the Review of Financial Studies in 1999.

Featured in Barron's Spot .


A Note on Stochastic Independence without Savage-Null Events (with Pierpaolo Battigalli), Journal of Economic Theory , 1996, 70, 1, 235-248. PDF (link to Elsevier Science)


Older Working Papers

Conditional Betas (with Tano Santos), March 2004.

Belief dependent Utilities, Aversion to State Uncertainty, and Asset Prices, revised January 2004.

Option Prices with Uncertain Fundamentals: Theory and Evidence on the Dynamics of Implied Volatilities, (with Alexander David), revised June 2002.

The Excess Co-movement of International Stock Markets in Bad Times: A Rational Expectations Equilibrium Model , (with Ruy Ribeiro – now at JP Morgan), November 2002, PDF file .

Short and Long Horizon Term and Inflation Risk Premia in the US Term Structure, (joint with Francis Yared – now at Lehman Brothers), PDF file ;


Chapters in Books, Discussions, Comments, Etc.

Uncertainty and Valuation: A Comment. with Lubos Pastor, Critical Finance Review, forthcoming (solicited comment)

Discussion Comments on 'Sidelined Investors, Trading-Generated News, and Security Returns', Review of Financial Studies, 15, 2, (Special Issue), 2002.


Lexicographic Rationality Orderings and Iterative Weak Dominance in Decisions, Games and Markets by Battigalli, Montesano and Panunzi (eds.), Kluwer Academic Publishers, 1997.

Downloadable Discussion

Please keep in mind the obvious point that my comments only reflect the version of the manuscript I received to discuss, and clearly not the current version of the same paper. Like children, papers evolve.

Discussion of Diagnostic Expectations and Stock Returns by Pedro Bordalo, Nicola Gennaioli, Rafael La Porta, and Andrei Shleifer, NBER AP Meetings, 2017.

Discussion of Heterogeneity and Asset Prices: A Different Approach by Nicolae Garleanu and Stavros Panageas, WFA, 2017.

Discussion of Policy Uncertainty, Political Capital, and Firm Risk-Taking by Pat Akey and Stefan Lewellen, Politics and Finance Conference, Chicago Booth, 2017.

Discussion of Information Asymmetries, Volatility, Liquidity, and the Tobin Tax by Danilova and Julliard, AFA, 2016.

Discussion of Low Risk Anomalies? by Schneider, Wagners, and Zechner, December, 2016.

Discussion of A New Class of Non-linear Term Structure Models by Eraker, Wang and Wu, EFA, 2016.

Discussion of Political Uncertainty and Public Financing Costs: Evidence from U.S. Gubernatorial Elections and Municipal Bond Markets by Pengjie Gao and Yaxuan Qi, AFA, 2015.

Discussion of Good and Bad Uncertainty: Macroeconomic and Financial Market Implications by Gill Segal, Ivan Shaliastovich, and Amir Yaron, NBER, 2014.

Discussion of Option-Implied Currency Risk Premia by Jakub W. Jurek and Zhikai Xu, NBER AP Meetings, 2014.

Discussion of Learning about the Neighborhood: A Model of Housing Cycles by Michael Sockin and Wei Xiong, NBER, 2014.

Downloadable Notes and Comments

Lectures on Recent Advances in Fixed Income Securities Modeling Techniques, Bank of Italy, June 2007.

Day 1: Equilibrium Models and the Dynamics of Bond Returns

Day 2: Term Structure Models

Day 3: No Arbitrage Term Structure Models and the Macro Economy

2006 ESSFM Focus Session on Time Series and Cross Sectional Predictability (Slides) July 2006.

Lectures on Recent Developments in Dynamic Portfolio Allocation, and Dynamic Asset Pricing, Bank of Italy, June 2006.

Strategic Portfolio Allocation: Recent Developments

Day 1: Asset Pricing Puzzles and Learning

Day 2: Habit Formation Models and Economic Activity

Day 3: Habits, Long Run Risk, and Cross-Sectional Predictability

Some Facts About the Tech “Bubble” in the Late 1990s (modified slides from NBER discussion), March 2006.

Modeling Multivariate Processes on the Unit Simplex (with Tano Santos)

Downloadable Teaching Notes

The following are selected chapters of my teaching notes for my PhD course “Topics in Dynamic Asset Pricing”

Presentation of the Course

Teaching Notes 1 Review of Dynamic Equilibrium Models with Complete Markets

Addendum to TN1 Portfolio Selection with Time Varying Opportunity Set

Teaching Notes 2 Equilibrium with Complete Markets

Teaching Notes 3 Incomplete Information and Learning: Equilibrium Returns

Addendum to TN3 Incomplete Information and Learning: Portfolio Allocation

Teaching Notes 4 Alternative Preferences: Habit Formation and Recursive Utility

Addendum to TN4: Portfolio Selection with Recursive Utility and Time Varying Expected Returns

Teaching Notes 5 Ambiguity Aversion and Robust Decision Making

Addendum to TN5: Robust Control, Time Varying Opportunity Set, and Learning