We study an investment experiment conducted with a representative sample of German households. Respondents invest in a safe asset and a risky asset whose return is tied to the German stock market. Experimental investments correlate with beliefs about stock market returns and exhibit desirable...

This study examines whether financial literacy affects stock market participation. We use data from the Preference Parameter Study, a nationwide survey in Japan, made by Osaka University. Our results show that financial literacy significantly improves stock market participation even after...

A decent budgetary portfolio is nothing more, and nothing less, than an accumulation of advantages that develop in quality and produce abundance money for the financial specialist to spend or reinvest. Markowitz (1959) is one of the pioneers of present day portfolio hypothesis. Generally, the...

This article implements the minimum variance frontier for the stochastic discount factor, according to both Hansen and Jagannathan (1991) and Cochrane and Hansen (1992), for the Brazilian stock market. Two approaches are considered in terms of equity returns and equity premium, respectively, the...

The study introduces empirical evidence that there are statistically significant relationships between intensity of upcoming aggregate merger activity and the present values of the factors HML and SMB in the Fama-French three-factor model of assets pricing

We find that commodity risk is priced in the cross-section of US stock returns. Following the financialization of commodities, investors hedge commodity price risk directly in the futures market, primarily via commodity index investments, whereas before they gained commodity exposure mainly via...

Recent literature shows that momentum strategies exhibit significant downside risks over certain periods, or called "momentum crashes." We find that the high uncertainty of momentum strategies is sourced from the cross-sectional volatility of individual stocks. Stocks with high realised...

We study the effects of the predictability in stock returns for the fair value of American Executive Stock Options (ESOs). By assuming a trending Ornstein-Uhlenbeck process for stock returns, we solve for the executive's optimal exercise policy using a methodology based on the least-squares...

We show that log-dividends (d) and log-prices (p) are cointegrated, but, instead of de facto assuming the stationarity of the classical log dividend–price ratio, we allow the data to reveal the cointegration vector between d and p. We define the modified dividend–price ratio (mdp), as the...

Because levered equity is an option on the firm, variations in asset idiosyncratic risk (ivol) induces a negative relationship between equity ivol and expected returns. We show that the effect is caused by the nonlinear payoff of equity and the law of one price, and is present in all but...