This paper shows that rare events help explaining the cross section of asset returns, the reason being that they are important in shaping agents’expectations. I reconsider the "bad beta, good beta" ICAPM proposed by Campbell and Vuolteenaho and I point out that the explanatory power of the model depends on including the stock market crash that opened the Great Depression. When using a Markov-sw...

Be a cause of the future and not a result from the past. Futures expectations in financial markets are paramount for today’s decision-making processes. Although many indicators have been developed in recent years to gauge investors’ expectations, most only give a narrow view of the situation, signalling just bullish or bearish sentiment. In this report, we go beyond those measures and aim to id...

A prominent idea in behavioral …nance is that individuals have some propensity to make correlated mistakes in their investment decisions. The leading critique of this idea is that investors who make systematic mistakes su¤er a utility cost and should be expected to alter their behavior. In this paper we present a noisy rational expectations model in which investors decide whether or to what deg...

We develop a noisy rational expectations equilibrium model of asset prices with informed and uninformed investors. In our model, informed investors affect the asset’s dividend payoff through their investment, thus have coordination incentives. They receive heterogenous private signals about the asset’s fundamental value and observe its price. The uninformed investors observe only the price. The...

Notwithstanding the important role non-executive directors’ play in corporate governance and the increasing attention they receive from regulators, research on non-executives is still in its infancy. UK Corporate Governance Code does not specify how the roles of non-executive directors should be carried out, but yet the importance of such roles is crucial to the notion of governance. In conjunc...

Individual investors’ overall return in stock markets decreases with the increase trade frequency due to factors such as commission expenses, insider trading, spreads, and institutional high-frequency algorithms. In this study, relationship between believing technical analysis method financial literacy level, overconfidence, high expectations of investors have been analyzed use survey data 3,84...

Stock prices reflect persistence differences across a wide range of accrual types that are categorized in Richardson, Sloan, Soliman, and Tuna (Journal of Accounting and Economics, 2005). Moreover, stock prices reflect short-term persistence differences more strongly than longterm persistence differences. These findings suggest that investors understand persistence of accrual types during the y...

We study the link between credit spreads and the heterogeneous formation of expectations in an economy where agents with different perception of economic uncertainty disagree about future cash flows of a defaultable firm. The intertemporal risk-sharing of disagreeing investors gives rise to three testable implications: First, larger belief heterogeneity increases credit spreads and their volati...