Real investors and markets are too complicated to be neatly summarized by a few selected biases and trading frictions. The quot;top downquot; approach to behavioral finance focuses on the measurement of reduced form, aggregate sentiment and traces its effects to stock returns. It builds on the...

The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market,...

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

The q-theory implies that investment is a first-order determinant of the cross section of expected returns, and that optimal investment drives the external financing anomalies. Our neoclassical model simultaneously and in many cases quantitatively reproduces: Procyclical equity issuance waves;...

We conduct a comprehensive study of the cyclical movements in economic fundamentals for value and growth firms. We document that the fundamentals of value firms are more adversely affected by negative business cycle shocks than those of growth firms. The differential response between value and...

The influence of speculative stocks on value stocks is examined through a set of economics experiments. The speculative asset is designed to model a company involved in a rapidly growing market that will be saturated at some unknown point. Using a control experiment where both assets are similar...

This paper analyzes the effects of removing price limits and term structure upon order-submission behaviors in IPOs. Many Emerging markets impose limits on trading prices within a trading day to prevent the market from overreaction, especially in IPOs market. With a sample of Taiwan IPOs, the...

This paper considers a new perspective on the relationship between stock prices and inflation, by estimating the common long-term trend in real stock prices, as reflected in the earning-price ratio, and both expected and realized inflation. We study the role of the transitory deviations from the...

In the present paper we concentrate on interactions, co-movements and the sharing of information signals between the organized (and parallel) markets in the Czech Republic. In particular, the lead-lag relationship between the Prague Stock Exchange (PSE) and the RMS (over the counter system) is...

The output gap, a production based macroeconomic variable, is a strong predictor of stock and bond returns. It is a prime business cycle indicator that does not include the level of market prices, thus removing any suspicion that returns are forecastable due to a fad in prices being washed away....