The Unlevered Economy, Aggregate Payouts and Asset Prices

We bring a novel data source of market value of corporate debt which allows us to uncover the market value of U.S. corporations' assets and their corresponding payouts to investors. Our measure of total payout encompasses both equity and debt, and includes not only cash dividends and interest payments, cash payouts, but also cash flows in the form of repurchases and issuances. We document that after aggregating the equity and debt components total payout often turn negative, meaning there are periods when the corporate sector receives funds from investors rather than pay investors. We find that while cash payouts are procyclical, total payouts are a-cyclical. Further, we show that while asset returns are predominantly equity-like, both cash and total payouts on assets are highly correlated with the corresponding debt measures. These data features and the large asset premium challenge standard notions of risk and return. We develop a long-run risk model that helps explain the above features of asset market data while accounting for the dynamics of total payouts, and specifically, explicitly allowing them to be negative.