We introduce a new meaure of risk appetite in financial markets, based on the cross sectional behavior of excess returns. Turning them into probabilities through a Markov Switching model, we define one global risk appetite measure as the cross-sectional average of the individual probabilities...

In this paper, we intend to explain an empirical finding that distressed stocks delivered anomalously low returns (Campbell et. al. (2008)). We show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on idiosyncratic coskewness betas,...

We study the implications of undiversified investors in a production-based asset pricing model with rare disasters. In our model, households experience idiosyncratic shocks to human capital and partially invest their wealth in a single firm with idiosyncratic shocks. The model features tractable...

We test whether asymmetric preferences for losses versus gains as in Ang, Chen, and Xing (2006) also affect the pricing of cash flow versus discount rate news as in Campbell and Vuolteenaho (2004). We construct a new four-fold beta decomposition, distinguishing cash flow and discount rate betas...

We provide the first large-scale study of the performance of expected-return proxies (ERPs) internationally. Analyst-forecast-based ICCs are sparsely populated and not robustly associated with future returns. Earnings-model-forecast-based ICCs are well-populated, but are unreliable outside the...

This paper assesses the quantitative impact of ambiguity on historically observed financial asset returns and growth rates. The single agent, in a dynamic exchange economy, treats the conditional uncertainty about the consumption and dividends next period as ambiguous. We calibrate the agent's...

This paper assessed the quantitative impact of ambiguity on historically observed financial asset returns and growth rates. The single agent, in a dynamic exchange economy, treats the conditional uncertainty about the consumption and dividends next period as ambiguous. We calibrate the agent's...

Rational asset pricing models should hold across assets. Nevertheless, in practice they are often developed and tested on a single asset pricing anomaly. This approach can lead to an overabundance of idiosyncratic ‘rational' explanations. The paper demonstrates the problem by showing that...

We provide theoretical and empirical arguments in favor of a diminishing marginal premium for market risk. In capital market equilibrium with binding portfolio restrictions, investors with different risk aversion levels generally hold different sets of risky securities. Whereas the traditional...

I propose a consumption-based asset pricing model in which the decision maker prices contingent cash flows realized at different future horizons and exposed to multiple shocks. The decision maker ignores the objective probability generating the data, and she evaluates a set of models that is...