This study tests whether investor belief differences affect the cross-sectional variation of risk-neutral skewness, using data on firm-level stock options traded on the CBOE from 2003 to 2006. Using well known proxies for heterogeneous beliefs, we find that stocks with greater belief differences...

This paper hypothesizes that market liquidity constrains mutual fund managers' ability to outperform, which introduces a higher liquidity risk exposure (beta) for skilled managers. Consistently, we document an annual liquidity beta performance spread of 4% in the cross-section of mutual funds...

This paper studies idiosyncratic risk of new ventures. An option-based model of a new venture with multistage investments and jumps is developed. Our model explains (1) why new ventures' idiosyncratic volatility eventually decreases as they clear Ramp;D investment stages and become mature firms...

When data exhibit cross-sectional variation in scale and regression parameters, pooled regression parameters can exhibit severe biases. It is commonly assumed that normalizing per-share earnings data by a firm's stock price eliminates cross-sectional variation in scale. This study shows that...

We present and estimate a Bayesian Hierarchical model of mutual fund returns. In our model, a fund's alpha reflects not only that fund's return history, but also information from other fund returns. Because parameters are estimated simultaneously for all funds, we can identify common residual...

This paper utilizes a Bayesian hierarchical model to study the distribution of skill (alphas) among mutual funds. The hierarchical model specifies a probability distribution over all parameters and funds, making it possible to formally analyze the variability of alphas across funds. In addition,...

This paper develops a formal model of analyst earnings forecasts that discriminates between rational behavior and that induced by cognitive biases. In the model, analysts are Bayesians who issue sequential forecasts that combine new information with the information contained in past forecasts....

Stock insurers can reduce or eliminate agency conflicts between policyholders and stockholders by issuing participating insurance. Despite this benefit, most stock companies don't offer participating contracts. This study explains why. We study an equilibrium with both stock and mutual insurers...

This study analyzes how equity mutual fund investor behavior has changed over time, and the associated impact on investor returns. First, we find that from 1991-2016 investor return-chasing behavior declined and more recently disappeared, while investor flows have become more sensitive to...

We examine the timing ability of mutual fund investors using cash flow data at the individual fund level. Over 1991-2004 equity fund investor timing decisions reduce fund investor average returns by 1.56% annually. Underperformance due to poor timing is greater in load funds and funds with...