Theory suggests that, in the presence of local bias, the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region. Using data on U.S. states and Census regions, we find clear-cut support for...

A large catalog of variables with no apparent connection to risk has been shown to forecast stock returns, both in the time series and the cross-section. For instance, we see medium-term momentum and post-earnings drift in returns—the tendency for stocks that have had unusually high past...