Because dividends are taxed at a higher rate than capital gains, as stock with a higher yields should have a higher expected return than a stock whose return is expected to result mostly from price appreciation. Adding yield to the traditional Security Market Line results in a "market plane"...

The principles of behavioral psychology can explain how crashes occur. In particular, the concept of "stimulus generalization" tells us that organisms tend to respond in the same way to similar stimuli. In a crash, or pre-crash, context, several stimuli - including rising prices, above-average...

In recent years, central banks have focused on communication with financial markets, and have tended to conduct policy with high transparency in order to further enhance the effectiveness of monetary policy. In this research, we focus on the members of the U.S. Federal Open Market Committee...

The Great Financial Crisis of 2007-09 confirmed the vital importance of advancing our understanding of macrofinancial linkages, the two-way interactions between the real economy and the financial sector. The crisis was a bitter reminder of how sharp fluctuations in asset prices, credit and...

The traditional dividend discount model is irrelevant for financial analysts. It requires them to forecast an infinite stream of dividends. Most of the present value is due to the forecast dividends far in the future. This part of the forecast is highly uncertain; hence nobody takes the forecast...

We study the persistence over time of nine well-known equity market anomalies in the cross-section of U.K. stocks. We find strong evidence of diminished statistical significance for most of these anomalies including the return reversal and momentum effects. Two anomalies -- firm profitability...

Daily return distributions are modeled by pure jump limit laws that are selfdecomposable laws. The returns may be seen as composed of a sum of independent and identically distributed increments or as a selfsimilar law scaling the sum of exponentially weighted past shocks or a combination...

Reasons behind IVOL puzzle remain largely unexplained. With a method misidentifying return reversal, Huang et al. (2010) claim that return reversal, a result of overreaction, leads to IVOL puzzle. We demonstrate that IVOL puzzle is a result of underreaction rather than of overreaction from both...

This paper studies the heterogeneous effects of the COVID-19 outbreak on stock prices in China and its hidden mechanisms from multi perspectives. First, we confirm the recent conclusion that the spread of the epidemic has a significant negative impact on stock market returns. However, this...

We propose a novel reinforcement learning approach to extract high-frequency aggregate growth expectations from asset prices. While much expectations-based research in macroeconomics and finance relies on low-frequency surveys, the multitude of events that pass between survey dates renders...