Essays in asset pricing

In the first chapter "Gold, Platinum, and Expected Stock Returns", I show that the ratio of gold to platinum prices (GP) reveals variation in risk and proxies for an important economic state variable. GP predicts future stock returns in the time-series and explains variation in average stock returns in the cross-section. GP outperforms existing predictors and similar patterns are found in international markets. GP is persistent and significantly correlated with option-implied tail risk measures. An equilibrium model featuring recursive preferences, time-varying tail risk, and shocks to preferences for gold and platinum can account for the asset pricing dynamics of equity, gold, and platinum markets, and quantitatively explain the return predictability.;In the second chapter "Risk Adjustment and the Temporal Resolution of Uncertainty: Evidence from Options Markets", we examine risk-neutral probabilities, which are observable from option prices and combine objective probabilities and risk adjustments across economic states. We consider a recursive-utility framework to separately identify objective probabilities and risk adjustments using only observed market prices. We find that a preference for early resolution of uncertainty is important in explaining the cross-section of risk-neutral and objective probabilities in the data. Failure to incorporate a preference for the timing of the resolution of uncertainty (e.g., expected utility models) can significantly overstate the implied probability of, and understate risk compensations for, adverse economic states.;In the third chapter "Volatility-of-Volatility Risk", we show that time-varying volatility of volatility is a significant risk factor which affects the cross-section and time-series of index and VIX option returns, beyond volatility risk itself. Volatility and volatility-of-volatility movements are identified from index and VIX option prices, and correspond to the VIX and VVIX indices in the data. Delta-hedged returns for index and VIX options are negative on average, and more negative for strategies more exposed to volatility and volatility-of-volatility risks. In the time-series, volatility and volatility of volatility significantly predict delta-hedged returns with a negative sign. The evidence is consistent with a no-arbitrage model featuring time-varying volatility and volatility-of-volatility factors which are negatively priced by investors.