We contrast two different asset pricing models, where the pricing kernel either (i) increases in the volatility dimension, reflecting investors' aversion to volatility, or (ii) could be non-monotonic in volatility, reflecting heterogeneity in investors' beliefs. The two models yield opposite...

We provide strong evidence that the dispersion of individual stock options trading volume across moneynesses (IDISP) contains valuable information about future stock returns. Stocks with high IDISP consistently underperform those with low IDISP by more than 1% per month. In line with the idea...

We establish a link between firms managing investors' performance expectations, earnings announcement premia, and cyclical patterns (i.e., seasonalities) in returns. Firms that are more likely to manage expectations toward beatable levels predictably earn lower returns before, and higher returns...

We create a market-wide measure of dispersion in options investors' expectations by aggregating across all stocks the dispersion in trading volume across moneynesses (DISP). DISP exhibits strong negative predictive power for future market returns and its information content is not subsumed by...

We propose a measure of dispersion in fund managers’beliefs about future stock returns based on their active holdings, i.e., deviations from benchmarks. We fi nd that both the level of and the change in dispersion positively predict subsequent stock returns on a risk-adjusted basis. This effect...

We propose a model of volatility tail behavior, in which the pricing measure dominates the physical measure in both tails of the volatility distribution and, hence, the derived pricing kernel exhibits an increasing and decreasing region in the volatility dimension. The model features investors...

We give an explicit formulaic algorithm and source code for building long-only benchmark portfolios and then using these benchmarks in long-only market outperformance strategies. The benchmarks (or the corresponding betas) do not involve any principal components, nor do they require iterations....

Because dividends are taxed at a higher rate than capital gains, as stock with a higher yields should have a higher expected return than a stock whose return is expected to result mostly from price appreciation. Adding yield to the traditional Security Market Line results in a "market plane"...

In this paper we study a simple two-period asset pricing model to understand the implications of uninsurable labor income risk and/or borrowing constraints, limited stock market participation, heterogeneous labor income volatilities, and heterogeneous preferences. We appraise the performance of...

When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...