Consistent with neoclassical models with investment lags, we find that a bottom-up measure of aggregate investment plans, namely, aggregate expected investment growth, negatively predicts future stock market returns. with an adjusted in-sample R2 of 18.5% and an out-of-sample R2 of 16.3% at the...

Previous empirical studies find that lottery-like stocks significantly underperform their nonlottery-like counterparts. Using five different measures of the lottery features in the literature, we document that the anomalies associated with these measures are statedependent: the evidence...

We propose a tractable model of an informationally inefficient market featuring non-revealing prices, no noise traders, and general assumptions on preferences and payoff distributions. We show the equivalence between our model and a substantially simpler model whereby investors face...

This paper studies the cross-sectional risk-return trade-off in the stock market. A fundamental principle in finance is the positive relation between risk and expected return, whereas recent empirical evidence suggests the opposite. Using several intuitive risk measures, we show that the...

We introduce uncertainty into Holmstrom and Milgrom (1987) to study optimal long-term contracting with learning. In a dynamic relationship, the agent's shirking not only reduces current performance, but also increases the agent's information rent due to the persistent belief manipulation effect....

This study explores the role of investor sentiment in the pricing of a broad set of macro-related risk factors. Economic theory suggests that pervasive factors (such as TFP and consumption growth) should be priced in the cross-section of stock returns. However, when we form portfolios based...

Introducing extrapolative bias into a standard production-based model with recursive preferences reconciles salient stylized facts about business cycles (low consumption volatility, high investment volatility relative to output) and financial markets (high equity premium, volatile stock returns,...

Previous studies show that the profitability-based factor can explain almost all asset pricing anomalies, highlighting the importance of firm profitability. This paper investigates both risk-based and behavioral-based explanations of the profitability premium itself. First, we show that the...

A sentiment-based model of the exchange rate is proposed to understand the forward premium puzzle. Agents over- or underestimate the growth rate of the economy. All else equal, when perceived domestic growth is higher than perceived foreign growth, the domestic interest rate is higher than the...

Turbo warrant is a special type of barrier options in which the rebate is calculated as another exotic option. In this paper, using Laplace transforms we obtain the valuation of turbo warrants under mixed-exponential jump diffusion model, which is able to approximate any jump size distribution....