While investors demand a premium to hold stocks with high illiquidity level and risk, they underreact to stock-level liquidity shocks and idiosyncratic liquidity. Built on Baker and Stein (2004) model, this paper documents: (i) significant relationship between market liquidity and sentiment,...

This paper studies monetary policy transmission mechanisms during QE. Using high frequency yield curve event studies of monetary policy announcements in combination with a dynamic term structure model, we can identify four types of monetary policy surprises: action, signalling (working through...

Despite much criticism, economic analyses often use Bayesian belief formation. Yet, widely applicable, empirically founded, non-Bayesian approaches are scarce. I investigate whether Thompson Sampling is a suitable unifying model of belief formation by testing its predictions in a pre-registered...

We study biased survival expectations across two domains and examine whether such biased expectations influence health and financial behaviors. Combining individual-level longitudinal data, retrospective, and end of life data from several European countries for more than a decade, we estimate...

This study evaluates the importance of confirmatory bias and the representativeness in interpreting corporate earnings news. We find that: (i) confirmatory bias and the representativeness heuristic affect how analysts interpret earnings announcements; and (ii) confirmatory bias has greater...

This study examines the recent literature on the expectations, beliefs and perceptions of investors who incorporate Environmental, Social, Governance (ESG) considerations in investment decisions with the aim to generate superior performance and also make a societal impact. Through the lens of...

Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We provide a direct test of this prediction in a representative sample of the Dutch population. Using individual-level data on return expectations for a broad...

Does the ability to ‘read the market’ affect equilibrium formation in asset markets? To answer this question, we conducted pre-registered learning to forecast experiments with market groups composed of either subjects with high or low Theory of Mind (ToM) capabilities, elicited via the eye...

Home price expectations play a central role in macroeconomics and finance. However, there is little direct evidence on how these expectations affect market choices. We provide the first causal evidence based on a large-scale, high-stakes, naturally occurring field experiment in the United...