I model a scenario in which investors do not know the payoff distributions of relatively newer firms and use the payoff distribution of similar well-established firms as starting points. The starting distributions are then adjusted for size, volatility, and other differences. Anchoring bias (Tversky and Kahneman (1974)) implies that such adjustments typically fall short. I show that adjusting c...

We examine the relation between US stock market returns and the US business cycle for the period 1960 2003. We identify two channels in the transmission mechanism. One is through the mean of stock returns via the equity risk premium, and the other is through the volatility of returns. We find that the relation is asymmetric with downturns in the business cycle having a greater negative impact o...

Conditional tests of the International CAPM in previous studies (e.g., Harvey, 1991) help identify predictability but not causality. In this paper, we take an event-study approach to examine if the world market risk premium is particularly higher on prescheduled USmacroeconomic announcement days. Empirically, we apply the Savor andWilson (2014) methodology to daily US stocks as well as foreign ...

In contrast to the existing literature on repeated games that assumes a Þxed discount factor, I study an environment in which it is more realistic to assume a ßuctuating discount factor. In a repeated oligopoly, as the interest rate changes, so too does the degree to which Þrms discount the future. I characterize the optimal tacit collusion equilibrium when the discount factor changes over time...

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In Brennan and Lo (2010), a mean-variance efficient frontier is defined as “impossible” if every portfolio on that frontier has negative weights, which is incompatible with the Capital Asset Pricing Model (CAPM) requirement that the market portfolio is mean-variance efficient. We prove that as the number of assets n grows, the probability that a randomly chosen frontier is impossible tends to o...

In the Data Streaming world, screening for outliers is an often overlooked aspect of the data preparation phase, which is needed to rationalize inferences drawn from the analysis of data. In this paper, we examine the effects of three outlier screens: A Trimming Window, The Box-Plot Screen and the Mahalanobis Screen on the market performance profile of firms traded on the NASDAQ and NYSE. From ...