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  • Lubo, P Astor, Robert F Stambaugh, John Campbell, Tarun Chordia, John Cochrane +16 others
  • 2002
This study investigates whether market-wide liquidity is a state variable important for asset pricing. We ¯nd that expected stock returns are related cross-sectionally to the sensitivities of returns to °uctuations in aggregate liquidity. Our monthly liquidity measure, an average of individual-stock measures estimated with daily data, relies on the(More)
This paper investigates the empirical characteristics of investor risk aversion over equity return states by estimating a time-varying pricing kernel, which we call the empirical pricing kernel (EPK). We estimate the EPK on a monthly basis from 1991 to 1995, using S&P 500 index option data and a stochastic volatility model for the S&P 500 return process. We(More)
The strong bias in favor of domestic securities is a well-documented characteristic of international investment portfolios, yet we show that the preference for investing close to home also applies to portfolios of domestic stocks. Specifically, U.S. investment managers exhibit a strong preference for locally headquartered firms, particularly small, highly(More)
and Jason Zweig for useful conversations and to Lipper Analytical Services for data on Texas municipal bond funds. Abstract. We examine the geographic distribution of the shareholders of the U.S. Regional Bell Operating Companies (RBOCs) and document that a customer of an RBOC is more likely to invest in his local company than in an RBOC in another service(More)
The article shows that two measures of the amount of private information in stock price—price nonsynchronicity and probability of informed trading (PIN)—have a strong positive effect on the sensitivity of corporate investment to stock price. Moreover , the effect is robust to the inclusion of controls for managerial information and for other(More)
Pension Research Council Working Papers are intended to make research findings available to other researchers in preliminary form, to encourage discussion and suggestions for revision before final publication. Opinions are solely those of the authors. This paper is to appear in Pension Design and Structure: New Lessons from Behavioral Finance (forthcoming).(More)
In an environment where trading volume affects security prices and where prices are uncertain when trades are submitted, quasi-arbitrage is the availability of a series of trades which generate inÞnite expected proÞts with an inÞnite Sharpe ratio. We show that when the price impact of trades is permanent and time-independent, only linear price-impact(More)
A liquidity trader wishes to trade a Þxed number of shares within a certain time horizon and to minimize the mean and variance of the costs of trading. Explicit formulas for the optimal trading strategies show that risk-averse liquidity traders reduce their order sizes over time and execute a higher fraction of their total trading volume in early periods(More)
We propose that consumers' investment decisions involve processes of promotion and prevention regulation that are managed across separate mental accounts, with different financial products seen as representative of promotion versus prevention. Consistent with this hypothesis, we show that (a) investors are differentially sensitive to gains and losses and(More)