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Optimal Security Design for Risk-Averse Investors
The American Economic ReviewWe use the tools of mechanism design combined with the theory of risk measures to analyze how a cash-constrained owner of an asset with known, stochastic returns raises capital from a population of investors who differ in their risk aversion and budget ...
Alex Gershkov +3 more
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Analyst Coverage and Expected Crash Risk: Evidence from Exogenous Changes in Analyst Coverage
Accounting Review, 2018Using brokerage mergers and closures as two sources of exogenous shock to analyst coverage, this study explores the causal effect of analyst coverage on ex ante expected crash risk as captured by the options implied volatility smirk.
Jeong‐Bon Kim, L. Lu, Yangxin Yu
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Short-Term Reversals and Longer-Term Momentum around the World: Theory and Evidence
The Review of financial studiesStock returns exhibit reversals at short horizons but slowly transition to momentum over longer horizons. To help understand this pattern, we develop a multiperiod model with short- and long-horizon noise traders, and active investors who underreact to
Narasimhan Jegadeesh +3 more
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Market-Wide Predictable Price Pressure
The American Economic ReviewWe demonstrate that predictable uninformed cash flows forecast aggregate market stock returns. Buying pressure from dividend payments (announced weeks prior) predicts higher value-weighted market returns, with returns for the top quintile of payment days
Samuel M. Hartzmark, David H. Solomon
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Common Pricing of Decentralized Risk: A Linear Option Pricing Model
The Review of financial studiesThis paper proposes a top-down linear option pricing model that unifies the pricing of different option contracts not by assuming common dynamics but by imposing common pricing on each risk source in proportion to decentralized risk estimates.
Liuren Wu, Yuzhao Zhang
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Informing the Market: The Effect of Modern Information Technologies on Information Production
The Review of financial studies, 2019Modern information technologies have fundamentally changed how information is disseminated in financial markets. Using the staggered implementation of the EDGAR system from 1993 to 1996 as a shock to information dissemination technologies, we find ...
Meng Gao, Jiekun Huang
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Effects of Credit Expansions on Stock Market Booms and Busts
The Review of financial studiesThere is causal evidence that mortgage credit expansions increase house prices. Does an expansion of margin lending increase stock prices? Because unconstrained arbitrageurs are more important for pricing stocks than homes, the impact is not obvious ...
Christopher Hansman +4 more
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Π-CAPM: The Classical CAPM with Probability Weighting and Skewed Assets
The Review of financial studiesWe propose a new asset pricing model that generalizes the mean-variance framework by including probability weighting, specifically the overweighting of rare, high-impact events. Our model—the Π-CAPM—generates several new predictions: (i) skewness has a
Joost Driessen +2 more
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Market Segmentation and International Bond Prices: The Role of ECB Asset Purchases
American Economic Journal: MacroeconomicsWe estimate euro-dollar yields differences, hedged and unhedged, with euro area confidential corporate bond holdings data. We find that euro yields significantly decline relative to dollar yields—more for securities in the portfolios of investors that ...
Ester Faia +2 more
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How to Dominate the Historical Average
The Review of financial studiesWe present a novel methodology for the out-of-sample forecast of the equity premium. Our predictive slope coefficient is a conservative constant that has a lower bias than the zero slope employed by the historical average, but has the same variance. We
Kaiqiang Li +3 more
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