In a dynamic trading model, investors with heterogeneous beliefs have an option to sell the stock now and buy it back later. Due to this repurchase option and the risk aversion of investors, it is possible for the stock price to be lower than the lowest valuation among investors even when the...

We analyze how speculative financial innovation affects stock prices, option prices, risk premium, market liquidity, and investor welfare in an economy with heterogeneous beliefs. When investors disagree about the covariance of the newly introduced stocks with the original stocks, we show that...

We develop a model in which investors have heterogeneous beliefs about both the mean and the risk of future signals and the final stock payoff. As investors who perceive the lowest risk vary across different periods, the overall perception of the market risk is reduced in an economy with dynamic...

We analyze how speculative financial innovation affects stock prices, risk premiums, market liquidity, and investor welfare in an economy with heterogeneous beliefs. When investors disagree about the covariance of the newly introduced stocks with the original stocks, we show that financial...

In this paper, we analyze the Chinese Government Bond (CGB) market. We find that CGB returns exhibit three common risk factors, which are well captured by three indices composed of short-, medium-, and long-term bonds. Moreover, these common risk factors exhibit strong momentum. In particular,...