This paper proposes a Near Explosive Random-Coefficient autoregressive model for asset pricing which accommodates both the fundamental asset value and the recurrent presence of autonomous deviations or bubbles. Such a process can be stationary with or without fat tails, unit-root nonstationary...

This paper assesses whether incorporating investor sentiment as conditioning information in asset pricing models helps capture the impacts of the size, value, liquidity and momentum effects on risk-adjusted returns of individual stocks. We use survey sentiment measures and a composite index as...

This paper approaches the central questions of the identification and the price of risk in an international asset pricing context. We construct and use factor mimicking portfolios to obtain factor loadings for testing unconditional and conditional pricing. We use a new measure of specification...

Recent literature supports the pricing of higher-order systematic co-moments of returns. This paper provides some support for the quadratic-market model that is consistent with the three-moment CAPM in explaining time-series returns of the winner and the smallest size portfolios. This study...

This paper examines the relative performance of the higher-moment CAPM market models and the CAPM in explaining realised returns and predicting one-period-ahead returns on individual stocks and (both equally- and value-weighted) portfolios of momentum, size and country sorts. The three-moment...

A growing literature shows evidence that supports higher-moment CAPM. We conduct cross-sectional tests of the four-moment CAPM on returns of portfolios formed from combining stocks in international markets and portfolios invested locally in the U.K. and the U.S. We find that coskewness and...

In this paper we examine the variables that explain the cross-section of UK stock returns. Previous studies have found that the CAPM beta has moderate or even insignificant explanatory power once the Fama French factors are included. However we control for different realised risk premia in up...

We construct unconditionally efficient asset allocation strategies that exploit return predictability of international size and momentum portfolios. The strategies achieve comparable returns to these investment assets while exhibiting much lower volatility. They largely avoid major losses by...

This paper introduces an international asset pricing model with time-varying risk premia. It augments the two factor model which has the return on the world index and trade weighted exchange rates as factors, with skewness and kurtosis factors. This leads to a stochastic discount factor that is...

Recent finance research that draws on behavioral psychology suggests that investors systematically make errors in forming expectations about asset returns, and thus that investor sentiment can have predictive power for asset returns. A number of empirical studies using both market and survey...