(The) impact of macroeconomic risk on asset prices and option market microstructure

Abstract

This dissertation consists of two essays on the relation of macroeconomy and asset returns, and one essay on option market microstructure. In the first essay, I find that macroeconomic disagreement from survey data predicts future Treasury bond excess returns. The predictive power is significant after controlling for the previously known predictors, such as the yield-curve factor, the macro factor, and the macro expectations factor from survey data. In the second essay, I find that the ultimate consumption model, which uses multi-period consumption growth instead of one-period consumption growth, well explains the cross-section of stock returns sorted on firm investment. The pricing performance is comparable to that of the other multifactor models, and it is linked to the relationship between business-cycle frequency consumption shocks and investment-based returns. In the third essay, I examine which group of investors - individuals, institutions, or foreigners - has more information about the true price process in the options market. As a result, foreigners are the most informative. The result is consistent after controlling for various option characteristics, trading volume, and the number of trades.