The first chapter fills a gap in the literature by examining the variation through time in the credit spread on high-yield bonds. I use methods common in the equity market literature to identify the portion of the credit spread attributable to the expected excess return on high-yield bonds and label it the "credit risk premium." I demonstrate that the credit risk premium predicts excess returns on high-yield bonds and its variation can be explained by classical measures of economic risk.

The second chapter asks "what do we really know about the rise in U.S. residential mortgage defaults?" My answer: not as much as we may think. I use loan category data from the Federal Housing Finance Administration (FHFA) to test and reject the hypothesis that the rise in default volumes and subsequent failure of Fannie Mae and Freddie Mac was caused by an increase in the share of "subprime" mortgages. I also demonstrate that the product-specific features of Alt-A and interest-only mortgages are unlikely to be an exogenous source of variation in default performance because these mortgages were concentrated in "hot" housing markets that experienced the largest price increases and subsequent declines.

In the third chapter, I develop a theory of an endogenous convenience yield to homeownership. An owner-occupier derives a flow of services unavailable to the renter of an otherwise identical residence. Among these are the ability to enter into a long-run housing contract, the ability to customize the residence to the precise tastes of the owner-occupier, the non-pecuniary benefits associated with homeownership (child development, stability, social status, etc.), and the ability to pledge the house as collateral for external finance to smooth lifetime non-housing consumption. The logic of an endogenous convenience yield is that house price variation unrelated to changes in equivalent rental value can be explained by changes in the value of these services.