Unlocking the Secrets of Asset Pricing: Changing the Game for Investors
The essays in "Essays on Rational Asset Pricing" show how rational asset pricing theory can explain why different assets have different expected returns. The researchers found that commodity futures contracts have varying expected returns due to differences in consumption risk, similar to stocks. Short-term consumption risk is important for explaining commodity returns, but not long-term risk. They also discovered that when investors face constraints and costs, the predictability of asset returns changes. Lastly, they explored how behavioral biases in investors can lead to mispricing in certain securities, like reverse convertible bonds.