We ask whether a firm’s choice of IPO price is informative in the sense that it relates systematically to the firm’s other choices and characteristics. We find that both institutional ownership and underwriter reputation increases monotonically with the chosen IPO price level. We also find that the relationship between IPO price and underpricing is U-shaped. In contrast, post-IPO turnover displ...

We outline a systematic approach to incorporate macroeconomic information into firm level forecasting from the perspective of an equity investor. Using a global sample of 324,982 firm-years over the 1998-2010 time period, we find that combining firm level exposures to countries (via geographic segment data) with forecasts of country level performance, is able to generate superior out of sample ...

This paper presents asset predictability evidence from the difference between implied and expected variances or variance risk premium that: (1) the variance difference measure predicts a significant positive risk premium across equity, bond, and credit markets; (2) the predictability is short-run, in that it peaks around one to four months and dies out as the horizon increases; and (3) such a s...

Government bonds comove more strongly with bond-like stocks: stocks of large, mature, low-volatility, profitable, dividend-paying firms that are neither high growth nor distressed. Variables that are derived from the yield curve that are already known to predict returns on bonds also predict returns on bond-like stocks; investor sentiment, a predictor of the crosssection of stock returns, also ...

When volatility feedback is taken into account, there is strong evidence of a positive tradeoff between stock market volatility and expected returns on a market portfolio. In this paper, we ask whether this intertemporal tradeoff between risk and return is responsible for the reported evidence of mean reversion in stock prices. There are two relevant findings. First, price movements not related...

This paper examines the relationship between seasonality, idiosyncratic risk and mutual fund returns using multifactor models. We use a large sample containing the return histories of 728 UK mutual funds over a 23-year period to measure fund performance. We present evidence that idiosyncratic risk cannot be eliminated, we also find evidence of seasonality in all fund categories. Specifically, w...

The representative-agent Lucas model stresses aggregate risk and hence does not allow us to study the impact of agents’ heterogeneity on the dynamics of equilibrium trading volume. In this paper, we investigate under what conditions non-informational heterogeneity, i.e., differences in preferences and endowments, leads to nontrivial trading volume in equilibrium. We present a non-informational ...

We describe conditions on signal distributions that are necessary and sufficient for informational herding in a stylized model of sequential specialist security trading. Curiously, there can be persistent herding even with signals that satisfy the Monotone Likelihood Ratio Property. Price paths are strongly biased in the direction of the herd but prices are also very sensitive to movements agai...

This paper establishes a strong link between the dispersion in beliefs among active mutual funds, as revealed through their active holdings (i.e., deviations from benchmarks), and future stock returns. We find that after standard risk adjustments, stocks in the top decile portfolio with large increases in dispersion outperform those in the bottom decile by more than 1% per month. This effect of...

The paper reports an experiment on the pricing of financial options. Arbitrage-free option pricing is tested against three hypotheses based on mental accounting. The data show that, even with considerable experience, unexploited arbitrage opportunities persist. Subjects do not seem to make the connections between the different investment possibilities, as essential for arbitrage-free pricing (A...