Due to wealth effects, the price of a security may vary with the realization of an underlying risk factor even when the security's dividend is independent of that factor. This paper highlights a crucial component of these effects hitherto ignored by the literature: changes in wealth do not alter...

Currently, financial economics is unable to predict changes in asset prices with respect to changes in the underlying risk factors, even when an asset's dividend is independent of a given factor. This paper takes steps towards addressing this issue by highlighting a crucial component of wealth...