This article investigates the pricing of volatility risk in agricultural commodity markets. We show theoretically that the cost of bearing volatility risk can be measured using returns to delta-neutral straddles. Using a sample of options for five commodities (corn, soybeans, Chicago wheat, live...

This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption and wealth shares of the agents. This time variation can resolve several asset-pricing puzzles,...

Assuming that risk premiums are determined by failure risk, we present a stylized model of interactions among risk-proxy variables, external financing, and stock returns in which a common mispricing factor, involving operating profit and external financing, drives the following five asset...

Systematic mispricing primarily affects speculative stocks and predominantly results in overpricing, predicting lower average returns. Because speculative stocks overlap with stocks deemed risky by rational models, failing to control for exposure to systematic mispricing can bias tests of...

We show that if sophisticated institutional managers and individual investors perceive tail-risks differently, then a new explanation for the pricing kernel puzzle emerges. We show, by example, that even a tiny difference in tail-risk perception by the two investor types can explain the pricing...

We study the implications of undiversified investors in a production-based asset pricing model with rare disasters. In our model, households experience idiosyncratic shocks to human capital and partially invest their wealth in a single firm with idiosyncratic shocks. The model features tractable...

Using a unique proprietary data set of trades by all large traders in the crude oil, gasoline, and heating oil futures markets, we explore determinants of their individual trading profits/losses. Consistent with the risk premium hypothesis, hedgers' mean trading profits are significantly...

We construct a direct measure of U.S. based foreign sentiment using flow shifts between U.S. and international mutual funds. Foreign sentiment predicts return reversals in international markets, while local sentiments predict reversals in local markets. Exploring this segmentation, we find that...