Based on the seminal asset-pricing model by Brock and Hommes (1998), we analytically show that higher wealth taxes increase the risky asset’s fundamental value, enlarge its local stability domain, may prevent the birth of nonfundamental steady states and, if they exist, reduce the risky...

We study the dynamics of a Lucas-tree model with finitely lived agents who "learn from experience." Individuals update expectations by Bayesian learning based on observations from their own lifetimes. In this model, the stock price exhibits stochastic boom-and-bust fluctuations around the...

Many stockholders irrationally believe that high recent stock market returns predict high future stock market returns. The presence of these extrapolators can help resolve the equity premium puzzle if the elasticity of intertemporal substitution (EIS) is greater than one. In our model,...

This study contributes to the investigation of the macro- finance interface by assessing the economic content and risk based interpretation of widely employed risk factors in the specifi cation of empirical asset pricing models, i.e., Fama-French size and value, and Carhart momentum factors, as...

Over the last two decades, alternative expected return proxies have been proposed with substantially lower variation than realized returns. This helped to reduce parameter uncertainty and to identify many seemingly robust relations between expected returns and variables of interest, which would...

Current empirical asset pricing research on idiosyncratic volatility (IVOL), negatively related to cross-sectional expected returns, fails to take explicit account of risk that results from a shock to a network of economically related stocks. These stocks move together, and are therefore...

In a model where investors disagree about the fundamentals of two stocks, the state price density depends on investor disagreements for both stocks, especially the larger stock. This implies that disagreement among investors in a large firm has a spillover effect on the pricing of other stocks...