Macroeconomic models that are based on either the rational expectations hypothesis (REH) or behavioral considerations share a core premise: All future market outcomes can be characterized ex ante with a single overarching probability distribution. This paper assesses the empirical relevance of...

Standard models of Bayesian updating predict a stronger investor reaction to new information when those investors are more uncertain about the firm. However, prior empirical literature has struggled to find widespread evidence in support of this prediction. This paper tests two explanations for...

We show theoretically that when Bayesian investors face time-series uncertainty about assets' risk exposures, differences in their priors affect the pricing of risk in the cross-section: different priors for the same asset can generate differences in perceived risk exposures, and thereby...

The properties of information, including "information uncertainty", can be understood only Bayesianly. Common formulations that define information uncertainty in terms of just statistical "precision" (i.e. sampling variance), or any one estimator characteristic (e.g. bias), are inadequate for...

We study how macroeconomic uncertainty (EU) manifests into the cross-sectional variations of the credit default swap (CDS)-bond bases. We develop a structural model in which common EU induces informational friction affecting the pricing in the bond and CDS markets. Higher EU will lead to a...