We estimate how an acquiring firm's risk changes depending on whether the market initially judges the acquisition to be neutral, strongly negative, or strongly positive for the shareholders of the acquiring firm. We found that for an average neutral acquisition, the annualized standard deviation...

A Behavioral Approach to Asset Pricing Theory examines the reigning assumptions of asset pricing theory and reconstructs them to incorporate findings from behavioral finance. It constructs a solid, intact structure that challenges classic assumptions and at the same time provides a strong theory...

This paper examines the empirical relation among trading volume, informational variables (i.e., precision and differential beliefs), the bid-ask spread components, and price volatility using a structural model that treats the spread components, trading volume, and price volatility as endogenous....

The relationship between risk and return lies at the heart of modern finance. This relationship is embodied within such core concepts as the capital market line and the security market line. Both of these graphs feature a positive slope, meaning that the higher the risk the higher the expected...

The paper analyzes the manner in which sentiment affects the pricing kernel. Sentiment is another term for traders' errors. There are two main questions addressed in the paper. The central question is: How can the concept of sentiment be formally defined so as to identify the manner in which...