In this paper we investigate the relation between idiosyncratic risk and expected return by estimating idiosyncratic volatility in different factor models including the downside and upside market models. In the analysis with portfolios, our results suggest an inverse relation between...

In this paper we investigate the effects of network topologies on asset price dynamics. We introduce network communications into a simple asset pricing model with heterogeneous beliefs. The agents may switch between several belief types according to their performance. The performance information...

We structurally estimate a model in which agents' information processing biases can cause predictability in firms' asset returns and investment inefficiencies. We generalize the neoclassical investment model by allowing for two biases -- overconfidence and over-extrapolation of trends -- that...

This paper studies the role of fluctuations in the aggregate price-earning ratio at different time scales for predicting stock returns and explore the channels through which returns are predicted. Using U.S. quarterly and international monthly data, we find that cycles in the price-earning ratio...

We study a class of endowment economies with long-run risks in which agents have generalized recursive smooth ambiguity preferences and heterogeneous beliefs. The expected growth rate of aggregate consumption consists of a persistent component. Agents cannot observe the component but learn about...

Abstract We predict cumulative stock returns over horizons from 1 month to 10 years using a tree-based machine learning approach. Cumulative stock returns are significantly predictable in the cross-section over all horizons. A hedge portfolio generates 250 bp/month at a 1 year horizon and 110...

An affine no-arbitrage asset pricing framework is developed that allows for agents to have rational but heterogeneous expectations. The framework can match both bond yields and the observed dispersion of yield expectations in survey data. heterogeneous information introduces a speculative...

The European Financial Stability Facility (EFSF) was set up in June 2010 as a temporary crisis resolution mechanism. In October 2012, its tasks were taken over by European Stability Mechanism (ESM), a permanent institution with a capital-based structure. Liquidity conditions for EFSF bonds in...

We estimate a dynamic asset pricing model characterized by heterogeneous boundedly rational agents. The fundamental value of the risky asset is publicly available to all agents, but they have different beliefs about the persistence of deviations of stock prices from the fundamental benchmark. An...