This paper establishes dividend volatility as a fundamental risk metric that prices assets. We theoretically incorporate dividend volatility clustering into a model in which narrow-framing investors are loss averse over fluctuations in the value of their investments. Our model shows that...

This paper studies the wealth and pricing implications of loss aversion in the presence of arbitrageurs with Epstein-Zin preferences. Loss aversion affects an investor's survival prospects mainly through its effect on the investor's portfolio holdings. Loss-averse investors will be driven out of...

We use a unique sample of corporate bonds guaranteed by the full faith and credit of the U.S. to test recent theories about why asset prices may diverge from fundamental values. These theories emphasize the role of funding liquidity, slow-moving capital, and the leverage of financial...

With the continuous questioning of the efficient market hypothesis and the booming development of behavioral finance theory, the basic framework of financial economics becomes increasingly blurred. Meanwhile, the adaptive market hypothesis proposed by Lo (2004), underscoring time-varying market...