Showing 1 - 10 of 11
We integrate a case-based model of probability judgment with prospect theory to explore asset pricing under uncertainty. Research within the "heuristics and biases" tradition suggests that probability judgments respond primarily to case-specific evidence and disregard aggregate characteristics...
Persistent link: https://www.econbiz.de/10010990558
Contingent capital in the form of debt that converts to equity when a bank faces financial distress has been proposed as a mechanism to enhance financial stability and avoid costly government rescues. Specific proposals vary in their choice of conversion trigger and conversion mechanism. We...
Persistent link: https://www.econbiz.de/10010990568
We use the popular television show <i>Mad Money</i>, hosted by Jim Cramer, to test theories of attention and limits to arbitrage. Stock recommendations on <i>Mad Money</i> constitute attention shocks to a large audience of individual traders. We find that stock recommendations lead to large overnight returns...
Persistent link: https://www.econbiz.de/10010990576
We correlate analysts' forecast errors with temporal variation in investor sentiment. We find that when sentiment is high, analysts' forecasts of one-year-ahead earnings and long-term earnings growth are relatively more optimistic for "uncertain" or "difficult-to-value" firms. Adding these...
Persistent link: https://www.econbiz.de/10010990620
This paper shows that an important link between investor sentiment and firm overvaluation is optimistic earnings expectations, and that management earnings guidance helps resolve sentiment-driven overvaluation. Using previously identified firm characteristics, we find that most of the negative...
Persistent link: https://www.econbiz.de/10010990622
Unspanned stochastic volatility (USV) refers to the inability of bonds to replicate volatility-sensitive derivative securities. Affine term structure models require special restrictions on the parameters to exhibit USV. We use a joint Eurodollar futures and options data set to estimate affine...
Persistent link: https://www.econbiz.de/10009214334
We investigate the long-standing puzzle on the underpricings of convertible bonds. We hypothesize that the observed underpricing is induced by the possibility that a convertible bond might renegotiate on some of its covenants, e.g., an imbedded put option in financial difficulties. Consistent...
Persistent link: https://www.econbiz.de/10009203726
No-arbitrage models are extremely flexible modelling tools but often lack economic motivation. This paper describes an equilibrium consumption-based CAPM framework based on Epstein-Zin preferences, which produces analytic pricing formulas for stocks and bonds under the assumption that macro...
Persistent link: https://www.econbiz.de/10009191102
In this paper, we develop an efficient algorithm to value options under discrete-time GARCH processes. We propose a procedure based on dynamic programming coupled with piecewise polynomial approximation to compute the value of a given option, at all observation dates and levels of the state...
Persistent link: https://www.econbiz.de/10009197763
This paper considers the so-called warehouse problem with both space and injection/withdrawal capacity limits. This is a foundational problem in the merchant management of assets for the storage of commodities, such as energy sources and natural resources. When the commodity spot price evolves...
Persistent link: https://www.econbiz.de/10009197805