Using high-frequency data, we decompose the time-varying beta for stocks into beta for continuous systematic risk and … beta for discontinuous systematic risk. Estimated discontinuous betas for S&P500 constituents between 2003 and 2011 … discontinuous betas in portfolios of stocks as the number of holdings increase. We show that discontinuous risk dissipates faster …

In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as … “anomalies” the theory of rational finance cannot explain: (i) Predictability of asset returns; (ii) The Equity Premium; (iii …) The Volatility Puzzle. We offer resolutions of those objections within the rational finance. We do not claim that those …

We study the effects of the investment horizon on asset price volatility using a Learning to Forecast experiment. We … investment horizons such bubbles do not emerge and price volatility tends to be lower. This is due to the fact that, for longer … relatively stable before participants start their prediction task, price volatility remains small, with prices close to their …

market, size, value, momentum, investment, profitability, and volatility. The value-added induced by factor management via ….g. factor volatility or factor valuation. For the majority of factors, our strategies appear successful especially in recessions …

This article explores the relationship between option markets for the S&P500 (SPX) and CBOE's Volatility Index (VIX … computed from SPX put options with different maturities, which results in a term structure for squared volatility. This term … is also used to measure volatility-of-volatility (vol-of-vol) and the volatility leverage effect. There may emerge small …

period from 01/1990 to 12/2009. We find that the market variance risk is priced, its risk premium is negative and … economically very large. The variance risk premium cannot be explained by the known risk factors and option returns …

We show that investors’ learning can drastically alter the dynamics of the variance risk premium: it no longer … overwhelmingly correlates with receiving good economic news. This mechanism rationalizes the puzzling observation that risk …-neutral volatility falls short of physical volatility at the peak of a severe crisis. Our results shed light on the interpretation of …

comparative analysis of risk aversion and ambiguity aversion. The perception of ambiguity is described by a hidden Markovian … consumption growth process. The hidden states differ both for the mean and the volatility. We show that the ambiguity …-averse investor downweights high-mean states in favor of low-mean ones. However, such distortion appears much stronger in low-volatility …