Empirical evaluations of CAPM usually attach a caveat that rejection is conditional on the choice of market proxy. We explore the criticality of the proxy choice disclaimer. Using different proxies and comprehensive simulations of the unobserved "true" market in Fama-MacBeth tests of CAPM, we...

I study the relation between option traders' risk perception and contemporaneous market conditions. Risk perception tends to increase when downside volatility increases more than upside volatility. The risk-return relation is asymmetric and nonlinear, best described as a downward-sloping...

Most theoretical models in finance measure risk as variance or covariance. However, many financial decision-makers seem to regard risk as the volatility of below-target returns and treat the volatility of above-target returns as a sweetener. Using simple metrics of downside risk and upside...

This paper studies the relationship between option traders' risk perception, as proxied by the implied Market Volatility Index (VIX) of the Chicago Board Options Exchange, and contemporaneous market conditions. The key discovery is that this metric of risk perception tends to increase when...

An asymmetric risk metric constructed to capture the nonlinearity in covariation of stock returns with bullish and bearish states of the market has been found to be priced in the economy. Stocks can be represented as portfolios of claims on the assets of firms and claims contingent on the state...