Optimal investment of firms implies that expected stock returns are tied with the expected marginal benefit of investment divided by the marginal cost of investment. Winners have higher expected growth and expected marginal productivity (two major components of the marginal benefit of...

We test the relation between ambiguity aversion and five household portfolio choice puzzles: non- participation, low allocations to equity, home-bias, own-company stock ownership, and portfolio under- diversification. In a representative U.S. household survey, we measure ambiguity aversion using...

We propose that financial institutions can act as asset insulators, holding assets for the long run to protect their valuations from consequences of exposure to financial markets. We demonstrate the empirical relevance of this theory for the balance sheet behavior of a large class of...

We use mutual fund flows as a measure for individual investor sentiment for different stocks, and find that high sentiment predicts low future returns at long horizons. Fund flows are dumb money %uF818 by reallocating across different mutual funds, retail investors reduce their wealth in the...

This paper develops behavioral relationships explaining investors' demands for long-term bonds, using three alternative hypotheses about investors' expectations of future bond prices (yields). The results, based on U.S. 'data for six major categories of bond market investors, consistently...

Questionnaires were sent out at the time of the October 19, 1987 stock market crash to both individual and institutional investors inquiring about their behavior during the crash. Nearly 1000 responses were received. The survey results show that: 1. no news story or rumor appearing on the 19th...

Human activities widely exhibit a power-law distribution. Considering stock trading as a typical human activity in the financial domain, the first aim of this paper is to validate whether the well-known power-law distribution can be observed in this activity. Interestingly, this paper determines...

Despite their strong positive average returns across numerous asset classes, momentum strategies can experience infrequent and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in "panic" states - following market declines and when market...

We use measures of neural activity provided by functional magnetic resonance imaging (fMRI) to test the "realization utility" theory of investor behavior, which posits that people derive utility directly from the act of realizing gains and losses. Subjects traded stocks in an experimental market...