We study how the interaction of agents with different beliefs about a firm’s future cash flows determines the jointbehavior of credit spreads, option implied volatilities, and stock returns. Beliefs heterogeneity influences the pricing kernelin a way that supports more realistic credit spreads...

In a Lucas orchard with heterogeneous beliefs, we study the link between market-wide uncertainty, difference of opinionsand co-movement of stock returns. We show that this link plays an important role in explaining the dynamics of equilibriumvolatility and correlation risk premia. In our...

We propose a risk-based firm-type explanation on why stocks of firms with high relative short interest (RSI) have lower future returns. We argue that these firms have negative alphas because they are a hedge against expected aggregate volatility risk. Consistent with this argument, we show that...

The paper explains why firms with high dispersion of analyst forecasts earn low future returns. These firms beat the CAPM in periods of increasing aggregate volatility and thereby provide a hedge against aggregate volatility risk. The aggregate volatility risk factor can explain the abnormal...

This paper studies the relation between the uncertainty of volatility, measured as the volatility of volatility, and future delta-hedged equity option returns. We find that delta-hedged option returns consistently decrease in uncertainty of volatility. Our results hold for different measures of...

This paper introduces a newspaper article count index related to OPEC that rises in response to important OPEC meetings and events connected with OPEC production levels. I use this index to measure how interest in OPEC varies over time and investigate how oil price volatility behaves when the...

We investigate the effects of economic uncertainty on the return volatility of financial assets, including equities, bonds, foreign exchange and commodities. We use several popular measures of economic uncertainty, and find the uncertainty displays significant but heterogeneous effect on...

Stocks with high uncertainty about risk, as measured by the volatility of volatility (vol-of-vol), robustly underperform stocks with low uncertainty about risk by 10 percent per year. This vol-of-vol effect is distinct from (combinations of) at least twenty previously documented return...

In this paper, we propose an innovative VIX model which takes future market information available to the traders into account. The future information is modeled by an initially enlarged filtration in our setup. We derive an explicit representation for the anticipative VIX process and obtain the...

The paper shows that the difference in aggregate volatility risk can explain why several anomalies are stronger among the stocks with low institutional ownership (IO). Institutions tend to stay away from the stocks with extremely low and extremely high levels of firm-specific uncertainty because...