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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...
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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...
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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...
Persistent link: https://www.econbiz.de/10012890966
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...
Persistent link: https://www.econbiz.de/10013152217
There is a myriad of financial anomalies in the cross-section of equity returns. They have been widely studied in the literature, which gives investors a large choice in terms of investment styles. In this paper, the authors show a perhaps unappreciated quality of financial anomalies: they...
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