Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs...

Consistent with predictions from the psychology literature, we find that stock prices co-move more (less) in culturally tight (loose) and collectivistic (individualistic) countries. Culture influences stock price synchronicity by affecting correlations in investors׳ trading activities and a...

This paper presents a robust new finding that delta-hedged equity option return decreases monotonically with an increase in the idiosyncratic volatility of the underlying stock. This result cannot be explained by standard risk factors. It is distinct from existing anomalies in the stock market...

Research from psychology suggests that people evaluate fluent stimuli more favorably than similar information that is harder to process. Consistent with fluency affecting investment decisions, we find that companies with short, easy to pronounce names have higher breadth of ownership, greater...

We show that macroeconomic growth at the end of the year (fourth quarter or December) strongly influences expected returns on risky financial assets, whereas economic growth during the rest of the year does not. We find this pattern for many different asset classes, across different time...

We investigate the role of trade credit links in generating cross-border return predictability between international firms. Using data from 43 countries from 1993 to 2009, we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable...

Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis point increase in the two-year nominal yield on a Federal Open Markets Committee announcement day is associated with a 42 basis point increase in the ten-year forward real rate....

Financial innovation through the creation of new markets and securities impacts related markets as well, changing their efficiency, quality (pricing error), and liquidity. The credit default swap (CDS) market was undoubtedly one of the salient new markets of the past decade. In this paper we...

We show that asset prices behave very differently on days when important macroeconomic news is scheduled for announcement. In addition to significantly higher average returns for risky assets on announcement days, return patterns are much easier to reconcile with standard asset pricing theories,...

This study documents a six-fold increase in short-term return reversals during earnings announcements relative to non-announcement periods. Following prior research, we use reversals as a proxy for expected returns market makers demand for providing liquidity. Our findings highlight significant...