We study the effect of country-specific noise on stock price comovement. Using a sample of dual-listed stocks, we show that the effect persists over time for some largest A-shares traded in China, but diminishes quickly for their H-shares traded in Hong Kong. We then examine whether the noise...

We construct portfolios based on characteristic weights and develop a novel way to measure capacity of these portfolios to absorb capital. Our estimates suggest that portfolio capacity is the highest for fundamental-weights, whereas portfolios based on momentum, equal risk budget, and equal...

I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that...

Financial crises are typically marked by substantial increases in ambiguity where prices appear to decouple from fundamentals. Consistent with ambiguity-based asset pricing theories, we find that ambiguity concerns are more severe for firms with higher pre-crisis earnings volatility, causing...

The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for...

This paper uses accounting-based reverse engineering of market expectations to identify potentially mispriced stocks. Building upon the “errors-in-expectations” hypothesis, we develop a theoretically funded yet practical tool for stock screening in this paper. We use the Ohlson (1995) model...

We provide a new explanation for the profitability anomaly along with a battery of supportive empirical tests. Our explanation is based on the observation that investors frequently value stocks by assigning similar price-to-earnings multiples to stocks with similar expected firm growth. This...

We develop a measure of how information events impact investors' expectations of risk. The measure is broadly applicable and simple to implement. We derive it from an option-pricing model, where investors anticipate an announcement that simultaneously conveys information on the announcer's...

We review here theory and evidence relating to herd behavior, payoff and reputational interactions, social learning, and informational cascades in capital markets. We offer a simple taxonomy of effects, and evaluate how alternative theories may help explain evidence on the behavior of investors,...

Classic value investing à la Graham & Dodd (1934) focuses on selecting stocks that seem cheap relative to their intrinsic value and fundamental quality. We use Bayesian inference to account for the large amount of uncertainty within intrinsic value estimation. We find that an...