Essays on Financial Economics

In Chapter 1, I find that large spikes in risk premia occur around financial crises but not around other disasters such as wars. A model with financial intermediaries generates endogenous financial crises that quantitatively match those in the data. The model makes additional empirical predictions which I confirm in the data. First, the equity of the intermediary sector strongly forecasts stock returns. Second, financial crises are temporary, which implies that the term structure of risky assets is downward sloping during financial crises when risk premia are concentrated in the near term. The model explains the level and slope of the term structure of risky assets including equities, corporate bonds, and VIX, both unconditionally and in a crisis.;Chapter 2 conducts cross-sectional asset pricing tests with an "intermediary based" SDF. Financial intermediaries trade frequently in many markets using sophisticated models. Their marginal value of wealth should therefore provide a more informative stochastic discount factor (SDF) than that of a representative consumer. Guided by theory, we use shocks to the leverage of securities broker-dealers to construct an intermediary SDF. Our single-factor model prices size, book-to-market, momentum, and bond portfolios with an R2 of 77% and an average annual pricing error of 1% performing as well as standard multi-factor benchmarks.;In Chapter 3, we document the fact that at both the aggregate and the firm level, corporations tend to simultaneously raise external finance and accumulate liquid assets, and we use this fact to learn about the aggregate cost of US firms' external finance over time. We construct a dynamic quantitative model of firms' financing and savings decisions in which both aggregate productivity, and the aggregate cost of external finance, vary over time. When the cost of external finance is low, firms raise external finance and accumulate liquid assets. Consistent with the model, we show empirically that the cross-sectional correlation between liquidity accumulation and external finance is highly correlated with proxies for the aggregate cost of external finance. We then use the model and cross-sectional data to infer the average cost of external finance per dollar raised in the US time series.