The Lucas (1978) Tree Model lies at the heart of modern macro-finance. At its core, it provides an analysis of the equilibrium price of a long-lived asset in an exchange economy where consumption is the objective, and the sole purpose of the asset is to smooth consumption through time....

We experimentally explore how common knowledge provided by accounting systems affects investors' decision and shapes the formation of security prices over time. We design alternative accounting structures and run experiments in artificial security markets framed by these structures. In sessions...

Post-earnings-announcement drift (PEAD) is one of the most solidly documented asset pricing anomalies. We use the controlled conditions of an experimental lab to investigate whether earnings autocorrelation is the driving cause of this anomaly. We observe PEAD in settings with uncorrelated and...

Improved disclosure increases prices and liquidity in a laboratory financial market, and does so more strongly when investors face the risk of unpredictable demand shocks. These results are consistent with a broad class of theoretical and empirical studies. Disclosure has larger effects on...

We develop a firm-specific measure of valuation uncertainty from the distribution of valuations predicted by an empirical multiples-based valuation model. The measure is effective in summarizing the information in existing proxies and offers substantial incremental variation. Among many possible...

Estimates of agents' risk aversion differ between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk...

Prior literature mostly finds bond yield spreads to be insufficiently explained by credit risk (the 'credit spread puzzle'). Recently, Feldhütter and Schaefer (2018) and Bai et al. (2020) revived this debate. We utilize the removal of sovereign guarantees for savings banks and state banks in...

Credit spreads are the yields of risky debt securities minus risk-free rates. The finance literature has long argued which share of them is due to credit risk and which share results from other factors. We suggest a novel set of multiple quasi-natural experiments based on government guarantees...