We show that market sentiment shocks create demand shocks for risky assets and a systematic risk for assets. We measure a market sentiment shock as the unexpected portion of the University of Michigan Consumer Sentiment Index's growth. This shock prices stock returns in Arbitrage Pricing Theory...

We investigate how disposal non-financial wealth and its changes ndash; wealth shocks create exogenous demands and demands shocks for financial assets and demands a systematic pricing premium for risky assets. This premium lowers Lucas (1978)'s implied risk aversion. Responses of financial...