Using a news-based gauge of geopolitical risk, we study its role for asset pricing in global emerging markets. We find that changes in risk positively predict future stock returns. The countries with the highest increase in geopolitical uncertainty outperform their counterparts with the lowest...

Why are stock prices much more volatile than the underlying dividends? The excess volatility of prices can in principle be attributed to two different causes: time-varying discount rates for expected future dividends, arising from variation in risk premia; or the irrational exuberance of...

Before information φ arrives, market observers must be uncertain whether the stock price conditioned on φ will be higher or lower than the current price. Otherwise there is an obvious arbitrage opportunity. By assuming this minimal condition of efficient markets, it is shown under the...

This paper examines “fat tails puzzle” in the financial markets. Ignoring the rate of convergence in Central Limit Theorem (CLT) provides the “fat tail” uncertainty. In this paper, we provide a review of the empirical results obtained “fat tails puzzle” using innovative method of...

The current paper defines the optimal sequential information gathering structure of a rational utility maximizer decision maker in the simplest non-trivial theoretical scenario, where the decision maker is allowed to acquire only two pieces of information from a set of multidimensional goods. We...

We analyze a dynamic moral hazard problem in teams with imperfect monitoring in continuous time. In the model, players are working together to achieve a breakthrough in a project while facing a deadline. The effort needed to achieve a breakthrough is unknown but players have a common prior about...

Information gathering is an instinctive response to uncertainty, but such efforts may not fully resolve the uncertainty that prompted them. This implies that proxies for investor information gathering may endogenously reflect investor uncertainty, not only before but also after information...

This study investigates the impact of uncertainty on the mean-variance relationship. We find that the stock market’s expected excess return is positively related to the market’s conditional variances and implied variance during low uncertainty periods but unrelated or negatively related to...

Epstein and Schneider (2007) develop a framework of learning under ambiguity, generalizing maxmin preferences of Gilboa and Schmeidler (1989) to intertemporal settings. The specific belief dynamics in Epstein and Schneider (2007) rely on the rejection of initial priors that have become...

This note provides a neat and enjoyable expansion and application of the magnificent Ordentlich-Cover theory of "universal portfolios". I generalize Cover's benchmark of the best constant-rebalanced portfolio (or 1-linear trading strategy) in hindsight by considering the best bilinear trading...