A popular interpretation of the Rational Expectations/Efficient Markets hypothesis states that, if it holds, market valuations must follow a random walk; hence, the hypothesis is frequently criticized on the basis of empirical evidence against such a prediction. Yet this reasoning incurs what we could call the ‘fallacy of probability diffusion symmetry’: although market efficiency does indeed i...

Existing studies find that compared to non-lottery stocks, lottery-like stocks tend to be overpriced and earn lower subsequent returns, probably due to investor preferences for lottery-like assets. We argue that investor preferences for holding speculative assets are more pronounced ahead of firms’ earnings announcements, probably due to lower inventory costs and immediate payoffs. We show that...

Finance theory suggests that information risk―that is, the uncertainty regarding valuation parameters for an underlying asset―is reflected in firms’ equity betas and the information asymmetry component of bid-ask spreads. We empirically examine these predictions for a sample of large U.S. banks, exploiting recent mandatory disclosures of financial instruments designated as fair value level 1, 2...

Using the event-study methodology and multivariate regressions, this paper examines the intensity of media coverage, its determinants and its marginal effect on stock returns following chemical disasters. To do this, we build an original dataset of chemical explosions that occurred worldwide from 1990-2005. First, our results show that news coverage increases with the social and environmental c...

In this paper, we examine the predictability of the cross-section of bank stock returns by taking advantage of the unique set of industry characteristics that prevail in the financial services sector. We examine predictability in the cross-section of bank stock returns using information contained in individual bank fundamental variables such as income from derivative usage, previous loan commit...

We analyze trading opportunities that arise from differences between the bond and the CDS market. By simultaneously entering a position in a CDS contract and the underlying bond, traders can build a default-risk free position that allows them to repeatedly earn the difference between the bond asset swap spread and the CDS, known as the basis. We show that the basis size is closely related to me...

In this paper we investigate the recently documented trading profits based on technical trading rules in an asset pricing framework that incorporates jump risk and time-varying risk premia. Following Brock, Lakonishok, and LeBaron (1992), we apply popular technical trading rules to the daily S&P 500 index over a long period of time. Trading profits are examined using bootstrap simulation to add...

The behavior of agents in financial markets often displays biases or errors; for example, agents frequently do not compute probabilities correctly. However, we argue that these biases/errors are not always reflected in prices. In particular, we hypothesize that agents who make errors in computing probabilities lose confidence in their probability estimates when they face market prices that are ...

INTRODUCTION Lack of insight is a common clinical problem in psichiatric patients, but few times has been properly studied until recently. Patients with good insight tend to show a better treatment adherence with a better prognosis and swow less hostility. This study aims to investigate whether there is a relationship between the hostility degree and insight or not and to anlalyze if there are ...

Rational herd behavior and informationally efficient security prices have long been considered to be mutually exclusive but for exceptional cases. In this paper we describe conditions on the underlying information structure that are necessary and sufficient for informational herding. Employing a standard sequential security trading model, we argue that people may be subject to herding if and on...