We report that excess returns in the bond market exhibit the same features of short-term momentum and long-term reversals that are observed in the equity market. We test whether these findings can be accounted for within a behavioral framework using the expectations of the short yield that are...

The expectations hypothesis of the term structure has been decisively rejected by a large empirical literature that spans several decades. In this paper, using a newly constructed dataset of synthetic zero coupon bond yields, we show that evidence against the expectations hypothesis became very...

We propose a behavioral explanation for the widely reported rejection of the rational expectations model of the term structure of interest rates. We distinguish between public and private information and show that overconfidence among investors about the precision of private information can...

Models in behavioural finance have been developed to explain apparent anomalies in stock returns. A property common to a number of these models is that agents under react in the short run to public signals about future earnings. This contrasts sharply with the popular informal belief that stock...

Just as it may be optimal to regulate firms that produce negative externalities, it may be optimal to provide subsidy to firms that produce positive externalities. This paper studies the optimal provision of subsidy to maximize the value of these externalities, and also whether there are policy...

We address the problem of optimal form and timing of FDI subsidy, and the impact of competition on these. We find that the optimal subsidy must include an element of discouragement against delaying the timing of the investment for the firm to prevent the firm from extracting rent from the host...

The non‐normality of financial asset returns has important implications for hedging. In particular, in contrast with the unambiguous effect that minimum‐variance hedging has on the standard deviation, it can actually increase the negative skewness and kurtosis of hedge portfolio returns....

We contribute to the debate over whether forecastable stock returns reflect an unexploited profit opportunity or rationally reflect risk differentials. We test whether agents could earn excess returns by selecting stocks which have a low market price compared to an estimate of the fundamental...

In this paper we apply a regression test of the volatility of asset prices to a cross-section data set of US stock prices each year between 1932-71. We show that the rejection of REEM in the time series domain carries over to a data set consisting of observations on a cross-section of individual...