Environmental Prices, Uncertainty and Learning

Risk, Uncertainty and Asset Prices

We identify the relative importance of changes in the conditional variance of fundamentals (which we call “uncertainty”) and changes in risk aversion in the determination of the term structure, equity prices and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumpt...

A Differential Oligopoly Game with Sticky Prices and Environmental Externality

Uncertainty, Time-Varying Fear, and Asset Prices

This paper studies the equilibrium asset pricing implications of time-varying (Knightian) uncertainty regarding economic fundamentals. The paper argues that uncertainty and its variation are important for jointly explaining the equity premium, risk-free rate, and the large variance premium embedded in the “high” price of options. A calibration of the model is able to simultaneously match salien...

Multidimensional Uncertainty and Hypersensitive Asset Prices

We consider a dynamic asset pricing model with one asset, in which one informed trader trades against liquidity traders and competitive market makers. Informed trader has private information about the fundamental value of the asset as well as the exogenous demand shock on the market. We characterize the unique linear Markov equilibrium of the model. With just the private information about funda...

Manager Optimism Based on Environmental Uncertainty and Accounting Conservatism

It is expected that more accounting conservation (environmental uncertainty) reduces manager optimism. Prior research, however, has struggled to establish this relation empirically. Moreover, some evidence points to the possibility that the manager optimism is lower for firms with more accounting conservation. In this paper, the author examine the link between accounting conservation, environme...