Risk-neutral pricing dictates that the discounted derivative price is a martingale in a measure equivalent to the economic measure. The residual ambiguity for incomplete markets is here resolved by minimizing the entropy of the price measure from the economic measure, subject to mark-to-market...

We develop a real options model in which a firm exposed to seasonal variations in its output price is able to produce output, store it, and sell it later, separating the production and selling decisions. The model suggests that the optimal policy for a firm with low inventory costs is to spread...

Using the pandemic as a laboratory, we show that asset markets assign a time- varying price to firms' disaster risk exposure. In 2020 the cross-section of realized and expected stock returns reflected firms' different exposure to the pandemic, as measured by their vulnerability to social...

We document the asset-pricing implications of the model-free option-implied dependence (MFID); a measure that exhibits information on linear and non-linear dependence between random variables. We show that stocks with high exposure to MFID generate significantly higher risk-adjusted returns in...

This paper aims to explore whether the cause of return premium associated with the Amihud (2002) illiquidity measure is the compensation for illiquidity or mispricing. This paper defines the Amihud premium as the difference in expected returns between high-Amihud-portfolio and...

Prediction (or information) markets are markets where participants trade contracts whose payoff depends on unknown future events. Studying prediction markets allows to avoid many problems, which arise in some artificially designed behavioral experiments investigating collective decision making...

The aim of this paper is to determine whether forward-looking option-implied returns forecasts lead to better out-of-sample portfolio performance than conventional time series models. We consider a simple two-asset setting with a risk-free asset and the S&P 500 index the risky asset with monthly...

We examine whether financial analysts—sophisticated market participants—are subject to limited attention. We find that when analysts have another firm in their coverage portfolio announcing earnings on the same day as the sample firm (a “concurrent announcement”), they are less likely to...

Analysts cover portfolios of firms. Firms in these analyst portfolios are thus in principle subject to common (integrated) production of information. Nonetheless, this paper documents significant stock return and forecast revision predictability across firms with common analyst coverage. Prices...

This study reveals the information content of individual investors' risk-adjusted return expectations. Although individual investors overestimate the performance of their stock purchases on average, the cross-sectional variation in their risk-adjusted return expectations is predictive of future...