We provide a model with overconfident risk neutral investors in which (i) low book-to-market firms have high betas but on average earn low returns; (ii) a factor-mimicking portfolio such as HML earns positive expected returns; (iii) such a portfolio loads on fundamental macroeconomic variables; (iv) the loadings of securities on such portfolios positively forecast cross-sectional future returns...

This paper provides empirical evidence that firm size, liquidity, and Value-at-Risk (VaR) explain the cross-sectional variation in expected returns, while market beta and total volatility have almost no power to capture the cross-section of expected returns at the firm level. The strong positive relation between average returns and VaR turns out to be robust across different investment horizons...

We demonstrate that auctioning market licenses may result in higher market prices than assigning them via more random allocation mechanisms. When future market pro…t is uncertain, winning an auction is like winning a lottery ticket. If …rms di¤er in risk attitudes, auctions select the least risk averse …rm, which, in turn, set a higher price (or a higher quantity, in case quantity is the decisi...

Insider trading studies related to the German market have emphasized that outside investors may earn excess returns by mimicking the transactions of corporate directors. Such a result, provided that it holds, would constitute a serious violation of the efficient market hypothesis. The results presented in this paper, though, show that this anomaly is mainly caused by a subset of stocks with hig...

Stocks with greater downside risk, which is measured by higher correlations conditional on downside moves of the market, have higher returns. After controlling for the market beta, the size effect and the book-to-market effect, the average rate of return on stocks with the greatest downside risk exceeds the average rate of return on stocks with the least downside risk by 6.55% per annum. Downsi...

Motivated by recent electronic marketplaces, we consider a single-product make-to-stock manufacturing system that uses two alternative selling channels: long-term contracts and a spot market of electronic orders. At time 0, the risk-averse manufacturer selects the long-term contract price, at which point buyers choose one of the two channels. The resulting long-term contract demand is a determi...