The CAPM is commonly used for an introduction of the equity cost in practice to calculate the corporate value, which is composed by the risk-free rate, equity market return and each respective beta. However, there is a fundamental complication between the risk, cost and return for the equity...

We propose a new, price-based measure of information risk called abnormal idiosyncratic volatility (AIV) that captures information asymmetry faced by uninformed investors. AIV is the idiosyncratic volatility prior to information events in excess of normal levels. Using earnings announcements as...

We propose a simple non-equilibrium model of a financial market as an open system with a possible exchange of money with an outside world and market frictions (trade impacts) incorporated into asset price dynamics via a feedback mechanism. Using a linear market impact model, this produces a...

High levels of turnover in financial markets are consistent with the notion that trading, like gambling, yields direct utility to some agents. We show that the presence of these agents attenuates covariance risk pricing and volatility, and implies a negative relation between volume and future...

Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0....

I argue that academic research often inadequately accounts for alpha decay. As an anomaly's alpha (i.e., the risk-adjusted expected excess return) and realized returns are negatively related, alpha decay coincides with positive realized returns. If the alpha decays at publication, observers may...

In this paper, we revisit the equity premium puzzle reported in 1985 by Mehra and Prescott. We show that the large equity premium that they report can be explained by choosing a more appropriate distribution for the return data. We demonstrate that the high-risk aversion value observed by Mehra...

Resilient Asset Allocation (RAA) is a more aggressive version of our Lethargic Asset Allocation (LAA) strategy. It combines a more robust “All Weather” portfolio with even slower growth-trend (GT) filter and a faster market crash-protection. GT timing goes risk-off only when both the US...

We estimate the equity risk premium (ERP) by combining information from twenty models. The ERP in 2012 and 2013 reached heightened levels - of around 12 percent - not seen since the 1970s. We conclude that the high ERP was caused by unusually low Treasury yields.

Understanding the factors that drive the stock market is more than an academic exercise. With a framework to understanding what that drives the overall market, business leaders are positioned to drive value their own businesses. While driving increases in shareholder value is one of the most...