This paper tests a simple market fraction asset pricing model with heterogeneous agents. By selecting a set of structural parameters of the model through a systematic procedure, we show that the autocorrelations (of returns, absolute returns and squared returns) of the market fraction model...

A new model misspecification measure for linear asset pricing models is proposed for the case where misspecification maps to latency of one of the pricing factors; in this case, the market return. This measure is suited both for testing models that include the market return as a pricing factor...

The shape of the term structure of credit default swap (CDS) spreads displays large variations over time and across firms. Consistent with the predictions of structural models of credit risk, we find that the slope of CDS spread term structure increases with firm leverage and volatility, but...

Among 37 methods to reduce transaction costs, we recursively choose the best method for next period's investment in each of three portfolio strategies: levered-momentum, zero-cost momentum, and the equally-weighted market. We identify a few of the best methods and offer a framework by which...

This study investigates the effect of production efficiency uncertainty (PEU) on firm credit risk from structural form credit model perspectives (e.g. asset volatility) by employing 4376 American manufacturing firms' bond observations from the year 1997 to 2008. We find that PEU is positively...

We investigate the behavior of the equilibrium price–rent ratio for housing in a standard asset pricing model and compare the model predictions to survey evidence on the return expectations of real-world housing investors. We allow for time-varying risk aversion (via external habit formation)...

We find that stocks exhibiting high dispersion in analysts' earnings forecasts not only underperform in the U.S. but also in some European countries. Investigating the abnormal returns generated by the dispersion strategy around the world for the 1990–2008 sample period, we observe that the...

The paper proposes a consistent estimator of time-varying risk aversion in consumption-based CAPM. Based on the Epstein–Zin–Weil (Epstein and Zin, 1989, 1991; Weil, 1989) recursive utility, we derive the Euler equation in which risk aversion is a non-parametric function of time. The proxy...

Since the reduced forms of the popular measures of asymmetric information in the price formation process are not nested within larger models we cannot evaluate their fit using standard statistical tools. Furthermore, pairwise correlations amongst the measures are small. We benchmark these...

This study attempts to explain the anomaly that firms with high-default risk earn low average realized returns. We measure default risk according to Ohlson's (1980) O-score and Campbell, Hilscher, and Szilagyi's (2008) failure probability and further implement Duffie, Saita, and Wang's (2007)...