In this paper, we investigate whether the international version of CAPM can price rational and irrational sentiments of U.S. individual and institutional investor sentiments. The results show that the CAPM prices rational sentiments driven by fundamentals and irrational sentiments not driven by...

We study the problem of testing the error distribution in a multivariate linear regression (MLR) model. The tests are functions of appropriately standardized multivariate least squares residuals whose distribution is invariant to the unknown cross-equation error covariance matrix. Empirical...

Modern Portfolio Theory, the Capital Asset Pricing Model, and the Efficient Market Hypothesis are cornerstone concepts in both academic and professional curricula. In spite of their long history and reputation, the CAPM and its extensions do not yield satisfactory empirical results. We argue...

Prior literature in accounting and financial economics measures asset growth as year-over-year growth in total assets. Such growth estimates are upward biased when firms engage in mergers and acquisitions. We decompose asset growth into merger-related and organic growth components, and find that...

We develop a model in which investors have heterogeneous beliefs about both the mean and the risk of future signals and the final stock payoff. As investors who perceive the lowest risk vary across different periods, the overall perception of the market risk is reduced in an economy with dynamic...

We develop an innovative deep neural network (DNN) supervised learning approach to extracting insightful topic sentiments from analyst reports at the sentence level and incorporating this qualitative knowledge in asset pricing and portfolio construction. The topic sentiment analysis is performed...

This paper builds a theoretical framework to endogeneize the editorial decisions of media and analyze their asset pricing implications. The media outlet optimally reports man-bites-dog signals by choosing to report about the firm that generates more uncertainty to investors. There are three main...