This paper provides evidence of how the beliefs of investors who step out of the market, or “non-marginal” investors, influence asset prices. Using more than two decades of respondent-level investor surveys, we construct wedge measures that quantify the distance between subjective investor beliefs and option-implied benchmarks. We use self-identified proxies for market participation to document that these wedges correspond with the beliefs of non-marginal investors. Non-marginal investors are generally more pessimistic in their market return forecasts and perceive greater crash risks than the pricing population. Subjective crash beliefs are a key determinant of participation, even when controlling for expected return beliefs. This heterogeneity, in part, explains the negative association between average expected returns estimated from surveys and future realized market returns. In the cross-section, stocks with greater sensitivity to non-marginal beliefs earn lower returns, particularly where disagreement is high. Taken together, the results provide evidence of a composition channel in which belief-driven exit concentrates risk among fewer investors. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

NFTs provided an extraordinary real-time laboratory for bubble economics: returns were exceptionally right-skewed, illiquidity pervaded even the most active platforms, and a handful of trades drove aggregate performance. Investors extrapolating from realized returns without recognizing selection bias and survivorship faced a substantial risk of disappointment. As our data and simulations confirm, successful NFT investing during the bubble required an almost perfect confluence of timing, liquidity, and luck.

We show that procyclical stocks–those whose cash flows rise with expected economic growth–earn higher average returns than countercyclical stocks. Leveraging nearly 75 years of economist survey data on real GDP growth expectations, we identify economic states while sidestepping model-driven forecast error. GDP forecasts comove with consumption and predict the market return, real GDP growth, and consumption growth. This approach builds on the literatures on both the Intertemporal and Consumption Capital Asset Pricing Models. We document a statistically significant, economically meaningful procyclicality premium that remains robust to standard factor controls. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The origin of the modern joint-stock company is typically traced to the concomitant appearance of large-scale maritime trading companies in England and the Netherlands in the early seventeenth century. Highlighting medieval cases in southern Europe, we claim that the joint-stock company emerged earlier in history. These prior appearances support the theory of convergent evolution towards the joint-stock company. We document alternative and largely independent developmental paths that suggest the joint-stock company can emerge in a variety of legal, political and socioeconomic contexts. This evidence has implications for identifying the necessary background underlying the emergence of the joint-stock company, and for the debate regarding the link between business institutions and economic growth.

Over the past two decades, respondents to the Shiller Investor Confidence Surveys have assessed the probability of a catastrophic stock market crash to be much higher than the historical frequency of such events. We decompose these crash probabilities into fundamental and subjective components and use a large language model to estimate the emotional content of respondent narratives. The subjective crash component is strongly associated with high negative affect. We use respondent location to test how news of unusual exogenous shocks affects crash belief formation. The results are consistent the risk-as-feelings hypothesis and suggest a path by which emotional response to news about salient events may play a role in the scale and variation in investor beliefs about rare disasters.

We find that procyclical stocks, whose returns comove with business cycles, earn higher average returns than countercyclical stocks. We use a half century of real GDP growth expectations from economists' surveys to determine forecasted economic states. This approach largely avoids the confounding effects of econometric forecasting model error. The loading on the expected real GDP growth rate is a priced risk measure. A fully tradable, ex-ante portfolio formed on this loading generates a procyclicality premium that is statistically significant, economically large, long-lasting over a few years, and independent of the size, book-to-market, and momentum effects.

Using transaction data from a large non-fungible token (NFT) trading platform, this paper examines how the behavioral bias of selection-neglect interacts with extrapolative beliefs, accelerating the boom and delaying the crash in the recent NFT bubble.We show that the pricevolume relationship is consistent with extrapolative beliefs about increasing prices which were plausibly triggered by a macroeconomic shock.We test the hypothesis that agents prone to selection-neglect formed even more optimistic beliefs and traded more aggressively than their counterparts during the boom.When liquidity for NFTs declined, observed NFT prices were subject to severe selection bias due in part to seller loss aversion delaying the onset of the crash.Finally, we show that market participants with sophisticated bidding behavior were less subject to selection bias and performed better.

Markowitz’s article “Portfolio Selection” appeared in 1952a in the Journal of Finance, and in the years to follow it transformed the mission of the investment professional from a bottom-up process of individual security analysis to a top-down approach to portfolio construction. He introduced the radical notion that investing could be represented as an optimization problem with quantitative inputs, a defined objective function based on axiomatically grounded utility, and a mathematical expression with an algorithmically discoverable solution.

The financial press is a conduit for popular narratives that reflect collective memory about historical events. Some collective memories relate to major stock market crashes, and investors may rely on associated narratives, or crash narratives, to inform their current beliefs and choices. Using recent advances in computational linguistics, we develop a higher-order measure of narrativity based on newspaper articles that appear following major crashes. We provide evidence that crash narratives propagate broadly once they appear in news articles and significantly explain predictive variation in market volatility. We exploit investor heterogeneity using survey data to distinguish the effects of narrativity and fundamental conditions and find consistent evidence. Finally, we develop a measure of pure narrativity to examine when the financial press is more likely to employ narratives.

The covariance of asset returns with economic states of the world is a fundamental input to asset pricing models.Using a semi-annual survey of forecasts by a panel of U.S. economists over more than 70 years, we infer forecaster beliefs about covariance between the S&P index and macro-economic factors.We find evidence that life-experience was a significant determinant of beliefs about the co-movement of inflation and stock returns

This paper tests the retrieved context model of Wachter and Kahana (2019) using a long-term panel of economic forecasts by participants in the Livingston Survey. Events in historical time contribute additional explanatory power to a relative time series model. Historical precedents for current macroeconomic conditions appear to be more relevant for extreme quantile forecasts. The results are consistent with the use of the retrieved context mechanism for formulating expectations about asset prices. They also suggest that historical events, not just lagged variables in relative time, matter in economic forecasting.

Stephen A. Ross was one of the most influential scholars in the field of financial economics in the late twentieth century. Ross's work was central to several novel domains of economic inquiry. His contributions included the arbitrage pricing theory (APT), the risk-neutral pricing of contingent claims, the binomial option pricing model, a theory of the term structure of interest rates, a seminal contribution to the economic theory of agency, and insights about conditioning biases in ex post performance measurement. In this article, we discuss his seminal papers and the broad scope of his curiosity within the arc of a remarkably productive and influential career that spanned five decades and yet ended sooner than most who knew him expected.

High market values and the recognition of its investment potential have made art a source of collateral for loans. Firms specializing in art lending have emerged to serve this market. This study explores the effect of regional variations in economic and financial conditions on art-backed lending activities. The authors show that demand for art loans increases when the economy experiences a downturn and liquidity needs are high. They compare the demand for art-secured loans with home equity loans and test a pecking order theory for the borrowing of high-net-worth individuals. The findings suggest that art as substitute collateral is increasingly used when home equity loans are difficult to obtain. Key Findings ▪ With the expansion of the high-end market for art and increased attention to its economic value in recent years, art has become an asset that can serve as loan collateral. The Uniform Commercial Code, under which debtors retain possession while creditors can register their security interest in the collateral, may also facilitate some of the art-backed lending in the United States. ▪ Using various regional economic performance measures, this study shows that some collectors borrow when the economy does not perform well. This supports the hypothesis that art may serve, in certain circumstances, as emergency collateral to smooth adverse economic shocks. ▪ Art is used as collateral when home equity loans are difficult to obtain and when housing prices decline. This is also consistent with the hypothesis that collectors borrow from nonbank creditors in times of financial distress to meet liquidity needs.

Real and private-value assets—defined here as the sum of real estate, infrastructure, collectibles, and noncorporate business equity—compose an investment class worth an estimated $84 trillion in the U.S. alone. Furthermore, private values can affect pricing in many other financial markets, such as that for sustainable investments. This paper introduces the research on real assets and private values that can be found in this special issue. It also reviews recent advances and highlights new research directions on a number of topics in the real assets space that we believe to be particularly important and exciting.

TheFinancial Analysts Journalis a leading forum for sharing knowledge about investment management. It often features academic research, but its focus has consistently been on practice and how new knowledge can support one of society's most important endeavors: preserving and growing assets for our collective economic future. In this article, I review some key contributions about portfolio management published in this journal. The lively debates demonstrate how asset management has evolved through give-and-take discussion of innovation versus established practice. TheFinancial Analysts Journalhas consistently introduced its readers to new ideas and methods. In doing so, it has greatly improved professional practice. Disclosure:The author reports no conflicts of interest. Editor's Note Submitted 8 April 2020 Accepted 29 April 2020 by Stephen J. Brown

We study asset pricing over the longue duree using share prices and net dividends from the Bazacle company of Toulouse, the earliest documented shareholding corpo- ration. The data extend from the firm's foundation in 1372 to its nationalization in 1946. We find an average dividend yield of 5% per annum and near-zero long-term, real capital appreciation. Stationary dividends and stock prices enable us to directly study how prices relate to expected cash flows, without relying on a rate of return transformation. A reduced-form asset pricing model with persistent dividends and a time-varying risk correction is not rejected by the data.

We test for gender effects in the art market using auction prices for artists who graduated from the Yale School of Art. Yale’s female graduates have significantly fewer auction sales, controlling for their graduating year gender ratio. Conditioning upon sale, works by female artists obtained higher average prices. The results suggest that while institutions and career paths may condition on gender, the market may not.