We present a dynamic Grossman-Stiglitz model with endogenous information acquisition to explain the pre-FOMC announcement drift. Because FOMC announcements reveal substantial information about the economy, investors' incentives to acquire information are particularly strong days ahead of the...

Modern asset pricing theory predicts an unambiguously positive relationship between volatility and expected returns. Empirically, however, realized volatility in the past often predicts expected returns in the future with a negative sign, as exemplified by the volatility-managed portfolios of...

Revisions of consensus forecasts of macroeconomic variables positively predict announcement day forecast errors, whereas stock market returns on forecast revision days negatively predict announcement day returns. A dynamic noisy rational expectations model with periodic macroeconomic...

Social-media-fueled retail trading poses new risk to institutional investors. This paper examines the origin and pricing of this new risk. I first present stylized facts on prices, quantities, and retail investors’ beliefs for a set of meme stocks. I establish that aggregate fluctuations in...

UK government bond yields rise significantly in a two-day window before Monetary Policy Committee (MPC) meetings, with the majority of this yield drift attributed to increases in risk premia. These effects concentrate in pre-MPC windows that coincide with issuance of UK government bonds....

We use transaction-level data on the UK government bond, repo and interest-rate swap markets to analyse market liquidity, investor behaviour and price dynamics during the market disruptions in September-October 2022. We provide a detailed account of how selling pressure in gilt markets – due...

This study documents how investors extrapolate from recent stock returns of locally headquartered firms when forming beliefs about aggregate stock market outcomes. Consistent with studies on the equity home bias, we find that the responsiveness to local information is a function of proximity....

We study the presence of long term investors using different return forecasting strategies and switching them based on their past performance generates the price trends observed in financial markets. In the empirical section, we assume that investors choose how to allocate their portfoilios...

This paper analyzes how asset prices in a binary market react to information when traders have heterogeneous prior beliefs. We show that the competitive equilibrium price underreacts to information when there is a bound to the amount of money traders are allowed to invest. Underreaction is more...

Using university admission cutoffs that generate exogenous variation in college-major choices, we provide causal evidence that enrollment in a business or economics program leads individuals to invest significantly more in the stock market, earn higher portfolio returns, and ultimately...