Major events often trigger abrupt changes in stock prices and volatility. We study the implications of jumps in prices and volatility on investment strategies. Using the event-risk framework of Duffie, Pan, and Singleton (2000), we provide analytical solutions to the optimal portfolio problem....

We study asset pricing implications of return extrapolation in a Lucas economy. We find that the effect of extrapolation is mainly on short rates rather than risk premia, time variation in expected returns is mainly driven by time-varying short rates, and return volatility can be lower than...

Although liquidity has received wide attention in asset pricing literature over the past decades, how stock liquidity is priced in emerging markets remains unclear. We find that liquidity plays an important role in explaining the cross-section and time-series variation in expected returns by...