We find that the idiosyncratic volatility (IVOL) puzzle exists only among firms that under-perform their benchmark or release negative earnings surprises. We explain the findings using a Bayesian updating model in which agents observe noisy signals about future cash flows. In this setting, high...

The role of market jump risk premium implicit in individual equity options has not been examined to date. This paper develops a new factor model for equity returns and option pricing that takes into account the market's diffusive and jump risks. We estimate the model on a large cross section of...

Heterogeneous-agents asset pricing theories imply that stockholders' consumption has the first-order effect on equity premium. Motivated by these theories, we evaluate the performance of the conditional CCAPM in explaining time-variation in market returns and cross-sectional variation in...

We propose a model where heterogeneous investors endogenously enter or exit the stock market. We characterize the equilibrium and present a novel conditional consumption-CAPM. The model implies a mild procyclical market entry and countercyclical exit. This small change in the composition of...

We develop 50 novel indices of State-level Economic Policy Uncertainty (SEPU) based on newspaper coverage frequency using 204 million state newspaper articles from January 1990 to December 2019. We assess the validity of our measures. Our SEPU indices vary counter-cyclically with respect to...