This study proposes and validates “other information” in analysts' forecasts as a legitimate proxy for future cash flows, and examines its incremental role in explaining stock return volatility. We suggest that “other information” contains information about fundamentals beyond that...

We contrast two different asset pricing models, where the pricing kernel either (i) increases in the volatility dimension, reflecting investors' aversion to volatility, or (ii) could be non-monotonic in volatility, reflecting heterogeneity in investors' beliefs. The two models yield opposite...

We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets...

This paper revisits the Kareken-Wallace model of exchange rate formation in a two-country overlapping generations world. Following the seminal paper by Arifovic (Journal of Political Economy, 104, 1996, 510-541) we investigate a dynamic version of the model in which agents' decision rules are...

Human beliefs, while always remaining in equilibrium, serve as a an equilibrium selector and determine the degree of aggregate volatility. Fully rational and risk averse economic agents expect macro-level dynamics to be characterized by a specific degree of volatility. Given this expectation the...

This paper explores how speculators can destabilize financial markets by amplifying negative shocks. During periods of turmoil created by an uncertainty shock, speculators react to declining asset prices by liquidating their holdings in hopes of buying them back later at a gain, despite the...