Our objective is to understand the trading strategy that would allow an investor to take advantage of quot;excessivequot; stock price volatility and quot;sentimentquot; fluctuations. We construct a general equilibrium model of sentiment. In it, there are two classes of agents and stock prices...

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...

We find that the demand for stock option positions that increase exposure to the underlying is positively related to measures of investor sentiment and past market returns, while the demand for index options is invariant to these factors. These differences in trading patterns are reflected in...

I examine the difference in news sentiment between stock price run-ups that crash (bubble stocks) and do not crash (non-bubble stocks). I find that bubble stocks have more negative sentiment in earnings news during their run-ups. The negative sentiment has predictive power up to two years in...

This paper provides evidence that reference price distributions can predict stocks' expected returns. We develop a model based on the disposition effect by considering shareholders' trading activities with different relative capital gains. The model suggests that both disposition-prone...

We analyze the role of hedge fund, swap dealer and arbitrageur activity in a Markov regime-switching model between high volatility bear markets and low volatility bull markets for crude oil, corn and Mini-S&P500 index futures. We find that these institutional positions reflect fundamental...

Trend following strategies have the reputation of being the holy grail of investment. This paper investigates the trend following strategy both from a theoretical and empirical perspective. This article also discusses conditional expected return and the drawdown with Value at Risk (VaR). VaR...

We examine the role of investors' beliefs in determining the post earnings announcement drift (PEAD). Specifically, we propose a technique to estimate the belief parameters of the informed and uninformed investors, based on which we define the uninformed investors' information acceptance ratio...