countries, which were recommended by Athanasoulis and Shiller (2001) to facilitate risk sharing. For reasonable levels of belief … Shiller (2001). The endogenous set of new assets would be directed towards increasing the opportunities for speculation rather … than risk sharing …

We decompose the excess market return into speculation and non-speculation components. The former is negative and … predicted by market sentiment. The latter is positive and not predicted by sentiment. The speculation component explains roughly … 30% of the variation in the excess market return. In the cross-section, the decomposition helps identify the risk and …