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A fundamental implication of asset pricing theory is that investors must earn risk-premiums for bearing exposure to systematic risk. The two-pass cross-sectional regression is a popular approach for risk-premium estimation. The empirical literature has found that this approach often delivers estimates that significantly differ from their time-series counterparts. The paper explores a test of model misspecification that exploits the difference between cross-sectional and time-series risk-premium estimates. The suggested approach complements traditional misspecification tests and may be applied as an alternative to the deployment of misspecification-robust standard errors to test risk-premium significance. [ABSTRACT FROM AUTHOR]

This article investigates the impact of systematic extreme correlations on the cross-section returns in the Chinese stock market. First, it extends the proposed extreme downside correlation (EDC) to the extreme upside correlation (EUC), and employs them to measure systematic tail risk. We find the asymmetry of systematic extreme correlations that EDC is always greater than EUC in the Chinese stock market. Then, we calculate the average returns of portfolios sorted by extreme measures and find that systematic extreme measures have a negative relationship with the Chinese stock returns. After controlling other potential variables such as size, lagged return, higher moments and higher co-moments, these two extreme correlation measures still have significantly negative relationship with stock returns. The results suggest that EDC and EUC help explain the cross-section returns of the Chinese stocks and manage tail risk for investors. [ABSTRACT FROM AUTHOR]

We present two valuation models which we use to account for the annual data on price per share and dividends per share for the CRSP Value-Weighted Index from 1929 to 2023. We show that it is a simple matter to account for these data based purely on a model of variation over time in the expected ratio of dividends per share to aggregate consumption under two conditions. First, investors must receive news shocks regarding the expected ratio of dividends per share to aggregate consumption in the long run. Second, the discount rate used to evaluate the impact of this news on the current price per share must be low. We use the approach of Campbell and Shiller (1987) and Campbell and Shiller (1988) to argue that the cash flow news in our model is not a stand-in for changes in expected returns: with our model parameters, returns are not predictable and price dividend spreads and ratios predict dividend growth at modelimplied magnitudes. We illustrate which parameter choices account for differences between our results and prior findings in the literature. We conclude that the answer to Shiller's (1981) question "Do stock prices move too much to be justified by subsequent movements in dividends?" is "not necessarily". [ABSTRACT FROM AUTHOR]

This paper investigates the premium of ambiguous central bank communication with diversified policy stances on the cross-sectional asset prices. Distinguishing different inclinations (dovish, neutral and hawkish) in the communications of the People's Bank of China (PBC) governors through a field-specific lexicon approach, we construct the ambiguous communication index (ACI) based on the textual methodology. We find that ambiguous communication makes it difficult to predict policy stance and increases policy uncertainty, thus the ACI earns a significant negative premium in the cross-section of asset pricing. This paper contributes to the literature on policy uncertainty by proposing a new supplementary perspective, a feasible measure and empirical evidence of ambiguous communication. Furthermore, this contribution extends to the literature on policy communication by distinguishing the statistically and economically significant premium linked to ambiguous communication. [ABSTRACT FROM AUTHOR]

Using a large panel of high-frequency trading data, this article investigates the intraday heterogeneity of risk pricing process in the Chinese stock market. Our research reveals that the financial assets in China exhibit intraday beta variation: high/low market risk level assets, with beta values above/below unity, tend to have downward/upward sloping beta trajectories across the intraday trading periods. We confirm a trend reversal of the risk-return relation between day and night in the Chinese market: the assets' intraday returns are negatively correlated with their market risk level, whereas their overnight returns are positively correlated with their risk level. Further investigation shows a connection between the intraday beta variation and the day-night reversal anomaly, and the risk-return reversal between day and night can be partially explained by the intraday beta variation of financial assets. After controlling for the intraday beta variation, the risk-return reversal anomaly between day and night becomes less pronounced in the Chinese market. [ABSTRACT FROM AUTHOR]

While credit cards provide transaction services, they have never been included in measures of money supply. We derive the theory to measure the joint services of credit cards and money and propose two measures of their joint services: one based on microeconomic structural aggregation theory, providing an aggregated variable within the macroeconomy; the other a credit‐card‐extended aggregate, optimized as an indicator to capture the contributions of monetary and credit card as nowcasting indicator of nominal GDP. The inclusion of the new aggregates yields substantially more accurate nowcasts of nominal GDP, illustrating the usefulness of the information contained in credit cards. [ABSTRACT FROM AUTHOR]

This paper provides new evidence on the pricing of market skewness risk by incorporating investor sentiment in the relation between sensitivity to innovations in implied market skewness and expected stock returns. Using both univariate and multivariate specifications, we conduct an extensive series of asset pricing tests on the cross-section of stocks during high and low sentiment periods separately. We find that market skewness risk carries a negative premium that cannot be explained away by known risk factors when sentiment is low. In contrast, the results are not conducive to a risk explanation when sentiment is high. [ABSTRACT FROM AUTHOR]

This study investigates the contradiction in the finding of a positive distress risk premium in Vassalou and Xing's study and the finding of a negative distress risk premium, i.e., a distress risk discount, in several other studies. Using the default likelihood measure calculated following Vassalou and Xing's procedure for 1965–2023, we show that excluding outliers and including the time period beyond the end of Vassalou and Xing's sample period in 1999 makes a difference in the results. Overall, using portfolio sorting and Fama-MacBeth regressions, this study supports the existence of a distress risk discount. This study also documents that the financial distress risk is negatively reflected in security prices even after accounting for size and book-to-market risk factors. Furthermore, it demonstrates that the negative distress risk premium is strong and persistent across economic expansions, recessions, and the COVID-19 pandemic. [ABSTRACT FROM AUTHOR]

Purpose: Throughout the 21st century, US households have experienced unprecedented levels of leverage. This dynamic has been exacerbated by income shortfalls during the COVID-19 crisis. Leveraging and deleveraging decisions affect household consumption. This study investigates the effect of the dynamics of household leverage and consumption on the stock market. Design/methodology/approach: The authors explore the relation between household leverage and consumption in the context of the consumption capital asset pricing model (CCAPM). The authors test the model's implication that leverage has a negative risk premium by transforming the asset pricing restriction into an unconditional linear factor model and estimate the model using the general method of moments procedure. The authors run time-series regressions to estimate individual stocks' exposures to leverage, and cross-sectional regressions to investigate the leverage risk premium. Findings: The authors show that shocks to household debt have strong and lasting effects on consumption growth. The authors extend the CCAPM to accommodate this effect and find, using various test assets, a negative risk premium associated with household deleveraging. Looking at individual stocks the authors show that the deleveraging risk premium is not explained by well-known risk factors. Originality/value: This paper contributes to the literature on the role of leverage in economics and finance by establishing a relation between household leverage and spending decisions. The authors provide novel evidence that households' leveraging and deleveraging decisions can be a fundamental and influential force in determining asset prices. Further, this paper argues that household leverage might explain the small, persistent, and predictable component in consumption growth hypothesised in the long-run risk asset pricing literature. [ABSTRACT FROM AUTHOR]

Concepts are introduced and applied for analyzing and selecting arbitrage portfolios in the face of uncertainty about initial positions and risk preferences. A stochastic arbitrage opportunity is defined as a zero-cost investment portfolio that enhances every feasible host portfolio for all admissible utility functions. The alternative to the existence of such investment opportunities is the existence of a solution to a dual system of asset pricing restrictions based on a class of stochastic discount factors. Feasible approaches to numerical optimization and statistical inference are discussed. Empirical results suggest that equity factor investing is appealing for all risk-averse stock investors with a wide range of initial position and sufficiently low transactions costs by mixing multiple factor portfolios with high after-cost appraisal ratios, low mutual correlation, and negative exposures to the relevant host portfolios. These findings weaken the case for risk-based explanations for the profitability of factor investing. This paper was accepted by Kay Giesecke, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4892. [ABSTRACT FROM AUTHOR]

We develop a test for deciding whether the linear spaces spanned by the factor exposures of a large cross‐section of assets toward latent systematic risk factors at two distinct points in time are the same. The test uses a panel of asset returns in local windows around the two time points. The asymptotic setup is of joint type: the number of assets and the number of return observations per asset increase asymptotically while the length of both time windows shrinks. We estimate the factor exposures, up to rotation, over the two periods using classical principal component analysis and evaluate their projection discrepancy, which is rotation invariant. This projection discrepancy is then centered with one between factor exposures computed over a partition of the pooled return data into odd and even increments. We derive the limit distribution of the statistic under the null hypothesis and develop an easy‐to‐implement bootstrap for constructing the critical region of the test. The test is applied to intraday financial data to determine whether the linear span of assets' systematic risk exposures differ during a trading day or after a release of important economic information. [ABSTRACT FROM AUTHOR]

This study undertakes an in-depth examination of how football matches and related sporting performance influence the intraday financial performance of corresponding blockchain-based fan tokens. Utilizing an event study encompassing eight distinct fan tokens and 325 football matches, we find a statistically significant average decline of 0.8% in fan token returns during the course of a football match, which subsequently decreases by an additional 0.7% in the post-match phase. Notably, a "loss effect" is identified, where the market reaction to losses is larger compared to wins. Furthermore, our study reveals large abnormal trading volumes before games, most prominently before UEFA Champions League matches, indicating anticipatory market behaviors. Further analysis establishes that abnormal fan token returns are impacted by various match-specific characteristics, such as the game outcome and form, predominantly before and during the match but not after. This distinct correlation between football games, sporting performance, and fan token returns has implications for a wide array of stakeholders and may suggest a challenge for investor (consumer) protection. [ABSTRACT FROM AUTHOR]

Purpose: China's stock market, which serves as an example of emerging markets, is steadily maturing in the context of globalization. In order to analyze the pricing mechanism of China's stock market, this paper builds a six-factor model to address the market features that are structurally efficient but not entirely efficient. Design/methodology/approach: This study updates the Fama–French factor model's construction process to account for the unique features of China's stock market before creating a model that incorporates size, volume, value, profitability, and profit-income factors based on institutional investors' trading behavior and research preferences. The SWS three-tier sector stock index's monthly and quarterly data for the years 2016–2021 are used as samples for this study. Findings: The results imply that China's stock market is structurally efficient and exhibits high levels of rationality in the region dominated by institutional investors. Specifically, big-size and high-volume portfolios that perform well in terms of liquidity can receive trading premiums. Growth-style sectors prevail at present, and investing in sectors with strong profitability and reliable financial reporting data can produce better returns. Practical implications: The research on China's stock market can be extended to improve the understanding of the development process of similar emerging markets, thereby promoting their improvement. To enhance the development of emerging markets, the regulators should attach great importance to the role of local institutional investors in driving the market to maturity. It is crucial to adopt a structured approach to examine the market pricing mechanism throughout the middle stage of the transition from developing to mature markets. Originality/value: This study offers a structured viewpoint on asset pricing in growing emerging markets by combining the multi-factor pricing model approach with behavioral finance theories. [ABSTRACT FROM AUTHOR]

Based on an asset demand system, we develop a framework to quantify the impact of market trends and changes in regulation on asset prices, price informativeness, and the wealth distribution. Our leading applications are the transition from active to passive investment management and climate-induced shifts in asset demand. The transition from active to passive investment management had a large impact on equity prices but a small impact on price informativeness because capital did not flow from more to less informed investors on average. This finding is based on a new measure of investor-level informativeness that identifies which investors are more informed about future profitability. Climate-induced shifts in asset demand have a potentially large impact on equity prices and the wealth distribution, implying capital gains for passive investment advisors, pension funds, insurance companies, and private banking and capital losses for active investment advisors and hedge funds. [ABSTRACT FROM AUTHOR]

Stock splits and reverse splits often result in short-term abnormal returns even though such split events do not change any fundamental factors affecting the valuation of a firm's stock. In this paper we report an experiment designed to better understand market reactions to stock splits and reverse splits. In one treatment, two assets have increasing fundamental values, and one asset is subject to a 2-for-1 share split while the other asset is not. In a second treatment, the fundamental values of both assets are decreasing, and one asset is subject to a 1-for-2 reverse split while the other asset is not. We find that in both cases, share prices do not fully adjust to changes in fundamental values per share following a split announcement. We provide evidence that the incomplete adjustment of share prices to splits or reverse splits can be attributed to heterogeneity in traders' cognitive abilities.

This study empirically tests time-varying asset pricing models in an emerging market with individual stocks. We employ a recently proposed instrumental variables (IV) technique that uses individual stocks as test assets while consistently estimating ex-post risk premiums. This method differs from constructing test portfolios, a common practice employed to mitigate errors-in-variables bias, and, instead, uses factor sensitivity estimates from alternating even and odd months as IVs. Applying this approach, we observe statistically insignificant factor risk premiums under various multifactor models in asset pricing tests at Borsa Istanbul, after accounting for asset characteristics. Our method facilitates the inclusion of essential risk or return-related characteristics of individual stocks in tests, raising insights usually obscured by conventional test portfolios. The results contribute to empirical asset pricing by highlighting the failure of classical models to explain risk premiums at Borsa Istanbul, a significant emerging stock market, when tested with individual stocks using an IV approach.

This paper studies the influence of salience on nominal and real yield curves by introducing the salience effect in the Piazzesi and Schneider model (hereafter PS). We construct the salience values based on the expected consumption growth using U.S. data. We find that salience values are negatively correlated with the expected consumption growth rates. Based on U.S. data from 1960q1 to 2020q4, we find that the salience model can generate upward nominal and real yield curves within reasonable risk aversion coefficients (less than 10), as well as well-fitted average yields with actual data. The salience model compensates for the PS or recursive preference model’s inability to generate an upward nominal or real yield curve within reasonable risk aversion. Furthermore, we provide empirical support for model implications. [ABSTRACT FROM AUTHOR]

The nonlinear nature of financial data series and the intricate incorporation of data into market prices necessitate a comprehensive exploration of key research findings, prevailing trends, intense debates, and subfields in the market behavior realm. Studies exploring the way in which technical analysis can exploit the deviation from market efficiency in stock markets, based on new prediction techniques (machine learning, deep learning, and artificial intelligence), are lacking. This study presents a comprehensive bibliometric assessment of market behavior using the Scopus database from 1972 to 2022. A thorough assessment process, which included keywords, filters, and data cleaning, was employed to narrow down the literature from 30,551 to 8,289 relevant papers. The research framework delineates seven primary themes that underpin this study: market efficiency, behavioral finance, technical analysis, volatility, fractals, asset pricing, and price discovery. For practitioners, investors, and policymakers, our study presents evidence regarding emerging themes, such as technical analysis, adaptive market hypothesis, and machine learning, which diverges from the findings of the proponents of equilibrium models based on investors’ rationality. Moreover, an in-depth inquiry into the role of technical analysis in shaping portfolio investment presents a promising future research avenue.

Emotional involvement is known to be necessary but not sufficient for good decision making in the face of uncertainty. It has been conjectured that emotional engagement in anticipation of risky outcomes constitutes "good" emotions. We introduce a new methodology to determine whether anticipatory emotional engagement is beneficial in the context of trading in financial markets. We focus on heart rate changes because they occur at a sufficiently high frequency to discern timing relative to events in the marketplace. After conservatively adjusting for multiple hypothesis testing, we find that participants whose heart rate changes anticipate their order submissions at inflated prices earn significantly more, whereas participants whose heart rate responds to their trades earn significantly less. By investigating cointegration between skin conductance response and the dynamics of individual portfolio values, we confirm the importance of emotional involvement in determining who makes or loses money. This paper was accepted by Bruno Biais, finance. Funding: This work was supported by the Australian Research Council [Grants DP180102284 and LE130100112]. The authors also thank the Monash Business School for funds associated with the Monash Business Behavioural Laboratory facility and equipment used in this study. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4883. [ABSTRACT FROM AUTHOR]

This paper presents a bibliometric analysis of research on asset pricing and identifies and highlights the most significant authors, keywords, articles, and journals based on a systematic literature review and Bibliometric analysis of 915 documents published over 33 years (1989-2022), obtained from the web of science database, to discover the noticeable landscape and research horizons in the field of asset pricing theory. This descriptive study demonstrates an upward trend in "asset pricing' papers in business and finance journals. According to the report, the United States is the leading contributor to the "asset pricing" study, followed by the Netherlands, the United Kingdom, Canada, and France. The authors, papers, and citation-based analyses show that Acharya vv; Albuquerque R, Aih, and Acciaio B are the most effective and influential asset pricing researchers, followed by Affleck Graves J and Akdeniz L. In terms of restrictions, our research is limited to the Web of Science database. Investigations from other databases could be used in future studies. We've also limited Bibliometric analysis to a few dimensions. Future research would look at networking from a different perspective. In our analysis, we limited ourselves to simply looking at scientific articles. Despite these flaws, we feel the study has research and management implications. [ABSTRACT FROM AUTHOR]

Cryptocurrency returns are highly nonnormal, casting doubt on the standard performance metrics. We apply almost stochastic dominance, which does not require any assumption about the return distribution or degree of risk aversion. From 29 long–short cryptocurrency factor portfolios, we find eight that dominate our four benchmarks. Their returns cannot be fully explained by the three‐factor coin model of Liu et al. So we develop a new three‐factor model where momentum is replaced by a mispricing factor based on size and risk‐adjusted momentum, which significantly improves pricing performance. [ABSTRACT FROM AUTHOR]

We investigate the asset's price and the portfolio choices of the managers in the equilibrium generated by a winner takes all contest in a financial market with cash and a risky asset. The manager's payoff consists in the value of the portfolio at the maturity and a prize, which is assigned according to the ranking based on the absolute performance. Our analysis focuses on the one-periodical game between an infinite number of identical managers. We found the existence of three regions where we can find the possible equilibria: according to the region the equilibrium can predict an overvalued, a valued as much as the fundamental value or an undervalued price of the asset. Then, the model allows for mispricing. We study the equilibria according to the parameters and the type of distribution of the risky asset, finding that only the latter is relevant to characterize the type of equilibrium. We find that the absolute value of mispricing is increasing with the tournament incentive: the inefficiency in pricing financial assets is increasing in managers' competition concern. Finally, we explore the case of elimination contest and beat the market tournament finding similar results. [ABSTRACT FROM AUTHOR]

We establish the asset pricing and hedging principle in a financial market model, which is a specific case of the von Neumann-Gale dynamical system, with both fixed and proportional transaction costs and trading constraints. The main results are hedging criteria stated in terms of consistent valuation systems, generalizing the notion of an equivalent martingale measure. [ABSTRACT FROM AUTHOR]

The Constant Leverage covering strategy for the equity momentum portfolio (CLvg) developed in this project cannot mask its shortcomings by increasing leverage. It has to successfully forecast and avoid more losses than profits to perform better than the momentum portfolio. This approach is different from other covering strategies available in the literature that focus on increasing the right tail of the momentum returns distribution at a faster rate than they increase the left tail. The CLvg strategy only depends on past information and uses the daily volatility of the loser portfolio to determine episodes of high and low volatility. The daily volatility of the loser portfolio has a stronger relationship with large negative momentum returns than the daily volatility of the momentum portfolio. The daily volatility of the loser portfolio also has a weaker relationship with larger positive monthly returns, and it is more predictable because it has a higher volatility persistence. The negative effects of transaction costs on the CLvg strategy are measured using bid and ask prices reported by CRSP from 1992 to 2021. During this period, the stock market presented an average excess return of 9.19% and a Sharpe ratio of 0.61, and 9.74% of its returns were crashes, which is a better performance than the momentum portfolio. The CLvg adjusted by transaction costs presented excess returns of 16.93% and a Sharpe ratio of 0.84, and only 8.31% of its returns were crashes. [ABSTRACT FROM AUTHOR]

Unusual events trigger persistent spikes in uncertainty. Standard models cannot match these dynamic patterns. This paper presents a unified framework, motivated by the literature on inattention. Agents choose whether and how to prepare for different possible states of the world by collecting information. Agents optimally ignore sufficiently unlikely events, so the occurrence of such events does not resolve, but rather increases, uncertainty. Uncertain agents have dispersed beliefs, making it harder to focus future preparation. Thus, uncertainty begets uncertainty for an inattentive agent, endogenously persisting. In a financial application, this framework matches patterns in volatility, volume of trade, belief dispersion, and spreads. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data file is available at https://doi.org/10.1287/mnsc.2023.4836. [ABSTRACT FROM AUTHOR]

We develop a financial-economic model for carbon pricing with an explicit representation of decision making under risk and uncertainty that is consistent with the Intergovernmental Panel on Climate Change’s sixth assessment report. We show that risk associated with high damages in the long term leads to stringent mitigation of carbon dioxide emissions in the near term, and find that this approach provides economic support for stringent warming targets across a variety of specifications. Our results provide insight into how a systematic incorporation of climate-related risk influences optimal emissions abatement pathways. [ABSTRACT FROM AUTHOR]

At the beginning of factor investing research, the investment universe concentrated on developed markets and transaction costs were paid little attention. Expensive trading costs of factor investing in emerging equity markets influence optimal portfolio decisions. Based on a total costs estimate of factor-based portfolio tilts, a simple cost-mitigation approach increases net performance. Exploiting the structure of market impact, we indirectly control the costs by limiting order sizes relative to their underlying stocks' short-term liquidity. This cost-efficient strategy yields better implementability and lower-priced turnover while a possible negative effect on gross performance is more than offset. [ABSTRACT FROM AUTHOR]

Objective: The main objective of this research is to study the relationship between corporate default and key investment strategies in the Iranian stock market. These strategies are value strategies and continuation of past performance (momentum). The concept of market anomalies, including value, size, and momentum premium, has been studied mainly in the stock exchange of the United States or other countries. Research focusing exclusively on the Tehran Stock Exchange is limited and related to the past years. Considering Iran's influential role in the region's economy and its damage from the recent global crises, it will be important to answer whether there are abnormal returns resulting from value premium, size premium and continuation of past returns on the Tehran Stock Exchange. Another goal of this research is to establish and investigate the theoretical relationship between corporate default and investment strategies. Method: In this research, using four corporate default indicators, including the probability of default calculated by Campbell, Hilscher and Szilagyi (2008) (named as CHS score), the criterion based on Merton model (1974) (named as M score), Altman's Z score (1968) and Ohlson's O score (1980), the role of this factor in pricing capital assets, as well in explaining the profitability of investment strategies known as value premium, size premium and momentum premium, is investigated and analyzed. In this way, a total of 10 models are used and tested: (1) Fama-French three-factor model (1993), (2) Carhart four-factor model (1997), (3) augmented Fama-French model including CHS score, (4) augmented Carhart model including CHS score, (5) augmented Fama-French model including Z score, (6) augmented Carhart model including Z score, (7) augmented Fama-French model including O score, (8) augmented Carhart model including O score, (9) augmented Fama-French model including M score, and (10) augmented Carhart model including M score. This research uses data from 168 companies listed on the Tehran Stock Exchange and Iran Over the Counter Market over 114 months. Results: According to this research, including the corporate default factor in the Fama-French three-factor model (1993) and Carhart four-factor model (1997) improves the performance of these models in pricing stocks. In the meantime, the indicator of the probability of default calculated by Campbell, Hilscher and Szilagyi (2008) has the greatest contribution to increasing the explanatory power of the mentioned models. After that, Ohlson's O score (1980) and Altman's Z score (1968) are ranked second and third, and the measure based on Merton's model (1974) stands at the last place. Additionally, it is found that value premium, while indifferent to the presence or absence of the corporate default factor in asset pricing models, is mainly seen among small and big value stocks. After augmenting these models with the corporate default factor, the significance of the size effect disappears among big value stocks. However, this variable still maintains its influence in explaining the fluctuations of returns of three other stock portfolios, including small value stocks, small growth stocks and big growth stocks. In addition, the findings show that the excess returns of none of the stock portfolios contain momentum premiums. More importantly, the research results suggest that the probability of corporate default and the excess returns of stock portfolios are significantly negatively correlated. Conclusion: According to the results, the first hypothesis of the research, "the corporate default factor explains the stock returns of firms listed on the Tehran Stock Exchange and Iran Fara Bourse," is confirmed. The second hypothesis of the research, based on which "including the corporate default factor improves the performance of Fama-French three-factor model (1993) and Carhart four-factor model (1997) in the pricing of capital assets", is also confirmed. The third hypothesis of the research, according to which "the corporate default factor changes the effect of risk factors related to size, book value to market value and momentum in Fama-French three-factor model (1993) and Carhart four-factor model (1997)", is confirmed about size and value effects. Still, there is no evidence that with the inclusion of the corporate default factor in Carhart's fourfactor model (1997), the impact of the momentum variable on the excess returns of stock portfolios will increase or decrease. The fourth research hypothesis, that "market-based corporate default criteria have more power in explaining the profitability of value premium, size premium, and momentum premium, compared to the criteria based on accounting data", is not fully confirmed or rejected. According to the above findings, the effects of value, size, and momentum are not compensation for corporate default risk. It is suggested that individual and institutional investors in the stock market pay attention to the financial health of the firm, its size, and its book to market ratio, respectively, instead of focusing on the past performance of its stocks. [ABSTRACT FROM AUTHOR]

This paper documents that funds with greater non-core allocations have higher market risk exposure, β, but lower returns. Additionally, it documents that one reason their returns are lower is because they poorly time their investment into these properties. Open-end private real estate funds have higher non-core allocations at the top of the market and lower allocations at the bottom. As such, these funds are disproportionately exposed to the downside of the market. Lastly, I find that reaching for yield and fund flow pressure are important determinants of this phenomenon. Funds buy relatively more non-core properties when either the market return expectations or their net queues are smaller. Buying more core properties when queues are larger enables managers to place capital quicker, but it also hurts existing investors by decreasing their market risk exposure at the time when it is the most desirable and beneficial. [ABSTRACT FROM AUTHOR]

We clear up an ambiguity in the statement of the GRS statistic by providing the correct formula of the GRS statistic and the first proof of its F-distribution in the general multiple-factor case. Casual generalization of the Sharpe-ratio-based interpretation of the single-factor GRS statistic to the multiple-portfolio case makes experts in asset pricing studies susceptible to an incorrect formula. We illustrate the consequences of using the incorrect formulas that the ambiguity in GRS leads to—over-rejecting and misranking asset pricing models. In addition, we suggest a new approach to ranking models using the GRS statistic p-value. [ABSTRACT FROM AUTHOR]

This paper presents a novel theoretical framework for incorporating climate risks and adaptation investments into infrastructure debt pricing. Utilizing the Capital Asset Pricing Model (CAPM), the framework extends the conventional modeling of infrastructure project revenues and costs to include climate risk considerations. It proposes three climate-informed revenue and cost formulations: adjustmentment of mean and standard deviation, incorporation of extreme climate events via Pareto and Poisson distributions, and a climate-informed cost model that includes adaptation investment. The paper demonstrates the application of this model in pricing a loan for a Light Rail Transit project in Costa Rica, introducing the concepts of "flood risk premium" and "adaptation curves". This study not only offers a novel lens through which to view infrastructure investment under climate uncertainty but also sets the stage for transformative policy and practice in financial risk assessment, encouraging a shift towards more sustainable and resilient infrastructure development. [ABSTRACT FROM AUTHOR]

This study examines if both market frictions and stock mispricing provide better explanation of the momentum premium, compared to the conventional asset pricing models. Using a large sample of 3727 companies listed on the Chinese stock market, we show that winner stocks are associated with larger market frictions and stock mispricing. Our findings reveal new empirical evidence that momentum premium can be attributed to market friction risk‐factor but additionally explained by a mispricing component. [ABSTRACT FROM AUTHOR]

The recent asset pricing evidence on the return-liquidity risk relationship is mixed and somewhat ambiguous. We reevaluate the importance of market-wide liquidity and liquidity risk for equity pricing by taking the role of investor sentiment into account. Regarding the market-wide liquidity level as a systematic factor, we find that high market sentiment tends to weaken the effect of market-wide illiquidity - both expected and unexpected - on stocks returns. With respect to systematic liquidity exposure as a priced risk factor, the results show that the effect of exposure to shocks in aggregate liquidity on expected returns is significantly positive when sentiment is low, while it is significantly negative when sentiment is high suggesting that "rational" asset pricing is only valid in the low sentiment regime without too much turbulence caused by sentiment traders. [ABSTRACT FROM AUTHOR]

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