We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyze firms to their more complicated peers. Spe...

Expected utility functions are limited to second-order (conditional) risk aversion, while non-expected utility functions can exhibit either …rst-order or second-order (conditional) risk aversion. We extend the concept of orders of conditional risk aversion to orders of conditional dependent risk aversion. We show that …rst-order conditional dependent risk aversion is consistent with the framewo...

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...

In this article, we examine the relation between return volatility, average trade size, and the frequency of transactions using transaction data. Consistent with Jones, Kaul, and Lipson (1994. Review of Financial Studies, 7, 631–651), our results show that the frequency of trades has a high explanatory power for return volatility. However, contrary to their finding, we find that average trade s...

Manski [2004] analyzes the relationship between the distribution of traders’ beliefs and the equilibrium price in a prediction market with risk neutral traders. He finds that there can be a substantial difference between the mean belief that an event will occur, and the price of an asset that pays one dollar if the event occurs and otherwise pays nothing. This result is puzzling, since these ma...

Natural selection is used to examine a one-sided buyer auction market. With each trader’s behavior preprogrammed with its own inherent and fixed probabilities of overpredicting, predicting correctly and underpredicting the fundamental value of the asset, informational efficiency occurs. If each buyer’s initial wealth is sufficiently small relative to the market supply and if the variation in th...

Accurate volatility predictions are crucial for the successful implementation of risk management. The use of high frequency data approximately renders volatility from a latent to an observable quantity, and opens new directions to forecast future volatilities. Our goals in this paper are: (i) to select an accurate forecasting procedure for predicting volatilities based on high frequency data fr...

abstract in this paper, we examine relationship between financial intermediary development variables and values added of agricultural sector in iran during 1352 to 1385. the five indices derived from the banking system as a financial intermediary development indicators, that define in related to the agricultural sector, and with the introduction of statistic methods of factor analysis and its a...

To inform theory and to investigate the practical application of prediction markets in a setting where the distribution of information across agents is critical, we conducted markets designed to forecast post-IPO valuations before a particularly unique IPO: Google. Because prediction markets allow us to infer the distribution of information before the IPO, the combination of results from our ma...

In laboratory experiments we explore the effects of communication and group decision making on investment behavior and on subjects’ proneness to behavioral biases. Most importantly, we show that communication and group decision making does not impact subjects’ overall proneness to biases like gambler’s fallacy and hot hand belief. However, groups decide differently than individuals as they rely...