It is widely agreed that the Nasdaq during the dot-com era 20 years ago was a full-fledged stock market bubble. Recently, the US stock market according to many metrics has become significantly more speculative and overvalued than it was at the dot-com peak 20 years ago. In both instances, a very...

Neoclassical economics does not offer a useful model of finance, because economic and financial behavior have different motivational dynamics. The law of supply and demand operates among rational valuers to produce equilibrium in the marketplace for utilitarian goods and services. The efficient...

Our objective is to understand the trading strategy that would allow an investor to take advantage of quot;excessivequot; stock price volatility and quot;sentimentquot; fluctuations. We construct a general equilibrium model of sentiment. In it, there are two classes of agents and stock prices...

We estimate a dynamic asset pricing model characterized by heterogeneous boundedly rational agents. The fundamental value of the risky asset is publicly available to all agents, but they have different beliefs about the persistence of deviations of stock prices from the fundamental benchmark. An...

This paper examines the relation between investor sentiment and returns in public and private markets. We utilize commercial real estate as the testing ground to provide a unique side-by-side comparison of sentiments short- and long-run impact on similar assets that are owned and traded in two...

We find that the demand for stock option positions that increase exposure to the underlying is positively related to measures of investor sentiment and past market returns, while the demand for index options is invariant to these factors. These differences in trading patterns are reflected in...

I examine the difference in news sentiment between stock price run-ups that crash (bubble stocks) and do not crash (non-bubble stocks). I find that bubble stocks have more negative sentiment in earnings news during their run-ups. The negative sentiment has predictive power up to two years in...

We show in a simple framework that momentum trading can exist in equilibrium and momentum trading is profitable. Properties of the model fit the empirics well. First, the model captures in a parsimonious manner both short-term overreaction and long-term reversals. Second, it predicts that...

This paper examines whether and how the popularity of portfolio insurance strategies can be justified theoretically. The analysis employs three different return generating processes with and without stochastic volatility and jumps. We find that an investor with constant relative risk aversion...

This paper reveals that in addition to fundamental factors, the 52-week high price and recent investor sentiment play an important role in analysts' target price formation. Analysts' forecasts of short-term earnings and long-term earnings growth are shown to be important explanatory variables...