It is widely held that better financial reporting makes investors more confident in their predictions of future cash flows and reduces their required risk premia. The logic is that more information leads necessarily to more certainty, and hence lower subjective estimates of firm "beta" or...

We decompose the excess market return into speculation and non-speculation components. The former is negative and predicted by market sentiment. The latter is positive and not predicted by sentiment. The speculation component explains roughly 30% of the variation in the excess market return. In...