I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices when investors receive information that is difficult to link to fundamentals. I show that the desire of investors to hedge ambiguity leads to portfolio inertia and excess...

I study the effects of aversion to risk and ambiguity (uncertainty in the sense of Knight (1921)) on the value of the market portfolio when investors receive public information that they find difficult to link to fundamentals and hence treat as ambiguous. I show that small changes in public...

I study how trading motives in asset markets affect equilibrium outcomes and welfare. I focus on two types of trading motives -- informational and allocational. I show that while a fully separating equilibrium is the unique equilibrium when trading motives are known, multiple equilibria exist...

We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions...

S&P 500 Index option-based volatility indexes have untenable risk-return profiles. These volatility indexes are not designed with consideration of important real-world risk characteristics of options and fail to represent volatility as a differentiated asset-class with relevance to the long-term...

I study a general equilibrium model in which investors face endowment risk and trade two correlated assets; one asset is traded on a liquid market whereas the other is traded on an illiquid over-the-counter (OTC) market. Endowment shocks not only make prices drop, they also make the OTC asset...

We study strategic trading by a blockholder who can intervene over time to influence the firm's cash flows. We consider the impact of asymmetric information on the incentives of the blockholder to trade, and study when information asymmetry increases blockholder ownership and leads to greater...

This paper documents that when a southern California home gets designated to a wildfire risk zone, its price drops by 11% relative to homes just outside the designation boundary. Whereas the risk designation is discontinuous, the underlying risk is continuous — suggesting the price effect is...

Adding a stage of signal acquisition to the expected utility model shows that Bayesian updating results in a well defined law of demand for financial information when asset return distributions are conjugate priors to signals such as in the gamma-Poisson case. Signals have a positive marginal...