We show that the widely documented negative relation between idiosyncratic volatility (IVOL) and expected returns can be explained by the mean reversion of stocks' idiosyncratic volatilities. We use option-implied information to extract the mean reversion speed of IVOL in an almost model-free...

Model selection, i.e., the choice of an asset pricing model to the exclusion of competing models, is an inherently misguided strategy when the true model is unavailable to the researcher. This paper illustrates the advantages of a model pooling approach in characterizing the cross section of...

A growing body of literature analyses the impact of news on companies' equity prices. We add to this literature by showing that the transmission channel of news to prices differs across sectors. First, we disentangle sectoral equity prices into components of expected future earnings and equity...

This paper provides global evidence supporting the hypothesis that expected return models are enhanced by the inclusion of variables that describe the evolution of book-to-market-changes in book value, changes in price, and net share issues. This conclusion is supported using data representing...

How does competition in firms' product markets influence stock returns? We examine this question using firms domiciled in the UK. We find that firms in less concentrated industries earn higher returns, even after controlling for the well-known determinants of the cross-section of UK stock...

We examine the effect of ambiguity exposure on the cross-section of stock returns in the US equity market. In order to quantify ambiguity, we use a recently-developed methodology that measures ambiguity by perturbations in uncertain probabilities, and aversion to ambiguity by aversion to...

In a novel model mining experiment, we data mine hundreds of randomly constructed three-factor models and find that many outperform well-known models from the literature, including those with four and five factors. The results provide compelling evidence that the threshold of factor model...