asset prices reflect both covariance risk and misperceptions of firmsapos prospects, and in which arbitrageurs trade against … mispricing. In equilibrium, expected returns are linearly related to both risk and mispricing measures (e.g., fundamental …

This paper describes results from a new experiment studying determinants and effects of economic risk-taking. In each … higher are the returns but also the higher is the risk of a crash and a loss. This setup permits us to investigate how … transparency and incentive structures – two issues intensively debated in policy circles – affect risk taking and vulnerability to …

Most textbook finance literature assumes risk to be the standard deviation of returns (volatility), which is not only … is consistent with investors’ actual perception of risk. Our method is presenting investors return distributions with … different risk characteristics for which they have to state their perceived risk and make investment decisions. Our results hint …

Post-issue stock underperformance is driven, at least in part, by the contemporary decline in idiosyncratic risk … market, they generally face higher uncertainty of mean profitability, which they resolve more quickly due to learning. Hence … they experience a larger reduction in idiosyncratic risk than their size, book-to-market, and exchange matching firms …

We examine the effects of estimation risk and Bayesian learning on equilibrium asset prices when there is uncertainty … generates a sizable average annual equity premium, relatively low average risk-free rate and a high mean Sharpe ratio that … approximates the data average with (1) low risk aversion, (2) non-persistent (i.i.d.) growth rates, (3) power utility, (4) diffuse …

expectations and risk perceptions) and preferences (risk tolerance) as a result of their personal return and risk experiences. Past … returns positively impact return expectations and risk tolerance, and negatively impact risk perceptions. Realized risk …, however, has no effect. That is, even in a highly volatile stock-market period in which risk appears very salient, investors …

the notion that T-bills and other cash proxies, such as money market funds and bank deposits, are the lowest-risk assets …