End users typically are net long VIX call options to hedge against market downturns, but paradoxically reduce these net long positions during periods of market turmoil. We explain this puzzle by considering a demand system with different demand curves for market makers and end users in a zero net supply market, and we use the time series of end users’ and market makers’ net positions to estimate the latent demand curves. Our findings indicate that both demand curves shift right during periods of market turmoil, but market maker demand reacts more strongly, especially for options with short maturities. These high-risk periods are therefore characterized by reduced net long positions of end users, higher volatility returns, and wider bid-ask spreads.

Motivated by the central importance of U.S. Treasury (UST) and the increasing concern over its resilience, we construct a high-frequency measure of stock-bond correlation to capture UST safety, and more importantly, its vulnerability. On days with highly negative stock-bond correlations, UST serves as the premier safe asset with widening convenience yield and decreasing term premium. By contrast, on days with high stock-bond correlations, UST becomes a source of risk with increased volatility and term premium. Prominent bond risk days captured by large increases of our stock-bond measure are FOMC announcements, the 2020 dash for cash, and the 2021 inflation surge.

We inspect the sources of the variation over time in the aggregate net payout yield (cy)

from the “capital supply-side" perspective by combining a structural investment model and a dynamic present-value relation. Consistent with prior “capital demand side" results for cy, variance decompositions (based on different VAR specifications) indicate that nearly all the variation in cy stems from the “cash-flow" channel, namely predictability of future investment cost growth, while the predictability of future investment returns (“discount-rate" channel) plays a negligible role. Our results clarify the importance of investment fundamentals, namely the cost of investment and marginal Q, in explaining cy.