We show that if sophisticated institutional managers and individual investors perceive tail-risks differently, then a new explanation for the pricing kernel puzzle emerges. We show, by example, that even a tiny difference in tail-risk perception by the two investor types can explain the pricing...

We show in a simple framework that momentum trading can exist in equilibrium and momentum trading is profitable. Properties of the model fit the empirics well. First, the model captures in a parsimonious manner both short-term overreaction and long-term reversals. Second, it predicts that...

Recent literature indicates that a liquidity investment style – the process of investing in relatively less liquid stocks within the liquid universe of publicly traded stocks – has led to excess returns relative to size and value. While previously documented at the security level, we examine...

We present comprehensive evidence in support of giving liquidity equal standing to size, value/growth, and momentum as investment styles, as defined by Sharpe (1992). First, we show that financial market liquidity, as identified by stock turnover, is an economically significant indicator of...

We first show that liquidity, as measured by stock turnover or trading volume, is an economically significant investment style that is distinct from traditional investment styles such as size, value/growth, and momentum. We then introduce and examine the performance of several portfolio...

This paper shows that preferences alone cannot explain the patterns reported in the literature.

In this paper the authors measure the risk attitudes of bond investors which can be revealed from settled market prices. They present an equilibrium model which focuses on the stochastic behavior of tastes in addition to the dynamics of investor beliefs.

This paper analyzes empirical market utility functions and pricing kernels derived from the DAX and DAX option data for three market regimes. A consistent parametric framework of stochastic volatility is used. All empirical market utility functions show a region of risk proclivity that is...

Inspired by the theory of social imitation (Weidlich 1970) and its adaptation to financial markets by the Coherent Market Hypothesis (Vaga 1990), we present a behavioral model of stock prices that supports the overreaction hypothesis. Using our dynamic stock price model, we develop a two factor...

Investors in equilibrium are modeled as facing investor specific risks across the space of assets. Personalized asset pricing models reflect these risks. Averaging across the pool of investors we obtain a market asset pricing model that reflects market risk exposures. It is observed on invoking...