We develop a tractable model of costly stock short-selling and lending market within a familiar dynamic asset pricing framework. The model addresses the vast empirical literature in this market and generates implications that support many of the empirical regularities. In the model, investors'...

We propose a novel way to study asset prices based on price distortions rather than abnormal returns. We derive the correct identity linking current mispricing to subsequent returns, generating a price-level analogue to the fundamental asset pricing equation used to study returns. Our GMM test...

This paper tests the idea that financial intermediaries who act as arbitrageurs in the asset market help determine the equilibrium risk of financial assets. They do this by turning “alphas” into “betas”; assets with large abnormal returns attract more arbitrage and covary correspondingly...

We document considerable cross-sectional variation in survey expectations about aggregate stock market returns. While most investors are extrapolators who expect higher returns after a good performance, some are contrarians. More notably, compared to extrapolators, contrarians have less...

Since firms time the stock market through equity net issuance, the direction of net issuance reveals the firm's net present value calculation and an asset pricing model of risk most likely to be used in the calculation. We take this insight to develop a test that infers an asset pricing model...

This paper relates valuation ratios to future markups in a present-value framework for total firm assets. Expected future cash flows explain the majority of the cross-sectional variance of firms’ asset market-to-book ratio, while asset discount rates only account for a relatively small...

A convenience yield represents a difference between yield on a safe bond and yield on a synthetic safe bond, constructed by combining a risky bond with a CDS contract. We explain the shapes of eurozone sovereign convenience curves using a model in which arbitrageurs face higher funding costs on...

This research investigates the influence of methodological choices in portfolio sorts on the size of the carbon premium. By analyzing more than 100,000 methodological paths, we find that variations in the construction of brown-minus-green portfolios create substantial non-standard errors. From...

We explore the impact of fake news on asset price dynamics within the asset-pricing model of Brock and Hommes (1998). By polluting the information landscape, fake news interferes with agents' perception of the dividend process of the risky asset. Our analysis reveals that fake news decreases the...