We provide a new theoretical framework for estimating the price sensitivities of a trading position with regard to five underlying factors in jump-diffusion models using jump times Poisson noise. The proposition that results in a general solution is mathematically proved. The general solution...

In this paper we attempt to reproduce both the business cycle facts and the equity premium of the Israeli economy—an economy which is "typical" in the sense that investment is much more volatile than output (and consumption). We show that GHH preferences, which are quite common in RBC models...

This paper shows that rare events are important in explaining the cross section of asset returns because of their role 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 relies...

For emerging market returns there is strong evidence that the departure from normality is primarily driven by kurtosis and not skewness. This paper investigates the empirical validity of a return generating process that includes quadratic and cubic market returns as factors of pricing for an...

This paper tests and compares the CAPM of Black (1972) and the Mean Lower Partial Moment (MLPM) Capital Asset Pricing Model of Bawa and Lindenberg (1977) and Harlow and Rao (1989) in the context of emerging markets. It is well known that returns in emerging markets are non-normal and have...

I present a consumption-based asset pricing model that is capable of matching the empirically observed Sharpe ratios of the aggregate market portfolio as well as the Fama-French value-minus-growth portfolio. The model also matches the level of the risk-free rate and the equity premium with a...

This study estimates liquidity premiums using the recently developed Liu (2006) measure within a multifactor capital asset pricing model (CAPM) including size premiums and a time varying parameter model for the West African emerging market of Nigeria. The evidence suggests that liquidity factors...

An extensive literature has analyzed the implications of hidden shifts in the dividend growth rate. However, corresponding research on learning about growth persistence is completely lacking. Hidden persistence is a novel way to introduce long-run risk into standard business-cycle models of...

People tend to think by analogies. We investigate whether thinking-by-analogy matters for investors’ willingness to pay for a risky asset in a laboratory experiment. We find that thinking-by-analogy has a strong influence when the assets in question have similar (but not identical) payoffs....

I analyze a model with heterogeneous investors who have incorrect beliefs about fundamentals. Investors think that they are right at first, but over time realize that they are wrong. The speed of the realization depends on investor confidence in own beliefs and arrival of new information. The...