In imperfect capital markets, an entrepreneur has to invest substantial personal funds to start a private firm and is forced to bear large firm-specific risk. Furthermore, if the entrepreneur is risk averse, one would expect the private equity to earn a premium for idiosyncratic risk. In this...

We consider a linear factor APT model and assume that agents are ambiguity averse with respect to payoffs of arbitrage portfolios. In contrast to the standard result, pricing errors need not converge to zero in the limit as the number of assets goes to infinity. Even in the case of exact factor...

We examine the connection between tail risk — as measured in Kelly and Jiang (2014) — and the cross-section of expected returns. In conditional predictive regression systems and vector-autoregressions of the market portfolio and the long- and shoresides of the Fama-French factor portfolios,...