This dissertation consists of two chapters. The first chapter shows that the measurement errors in betas for stocks induce corresponding measurement errors in alphas and a spurious negative covariance between the estimated betas and alphas across stocks. This negative covariance between the...

The well-documented negative relationship between idiosyncratic volatility and stock returns is puzzling if investors are risk-averse. However, under prospect theory, while investors are risk-averse in the domain of gains, they exhibit risk-seeking behavior in the domain of losses. Consistent...