This paper proposes a dynamic information diffusion model that explains the lead-lag reaction of stock prices resulting from the interaction of price trends and implied price risk (IPR). Consistent with our model's predictions, we construct a zero investment underreaction portfolio (overreaction...

This study uncovers a unique dividend-tax arbitrage strategy that provides high-bracket investors the opportunity to circumvent taxation on dividend income. As the first comprehensive analysis, we examine diverse investor types, implementation techniques, and implications on stock prices....

We study jump variance risk by jointly examining both stock and option markets. We develop a GARCH option pricing model with jump variance dynamics and a non-monotonic pricing kernel featuring jump variance risk premium. The model yields a closed-form option pricing formula and improves in...

Bolton, Scheinkman, and Xiong (2006) model a setting where investors disagree and short-sales constraints cause pessimistic views of stock prices to be less influential, which leads to speculative stock prices. A theoretical implication of the model is that existing shareholders can exploit the...

This paper documents that policy uncertainty reduces future stock price crash risk. Our tests show that this negative relation is more pronounced among firms with more short-sale constraints, with no actively traded credit default swap contracts, or with higher firm-level political risks. The...