In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as … “anomalies” the theory of rational finance cannot explain: (i) Predictability of asset returns; (ii) The Equity Premium; (iii …) The Volatility Puzzle. We offer resolutions of those objections within the rational finance. We do not claim that those …

trading. We hypothesize that trading of pessimistic investors (with net short futures positions) contains more information … than that of optimistic investors. We document the negative volatility–volume relation is associated with pessimistic …

purveying erroneous information. Neither the alpha nor the beta statistics in the SIMM appear to be significantly affected by …