We propose a dynamic factor state-space model for high-dimensional covariance matrices of asset returns. It uses observed risk factors and assumes that the latent covariance matrix of assets and factors is observed through their realized covariance matrix with a Wishart measurement density. The...

Using survey data on expectations of future stock returns, we recursively estimate the degree of extrapolative weighting in investors' beliefs (DOX). In an extrapolation framework, DOX determines the relative weight investors place on recent-versus-distant past returns. DOX varies considerably...