
“Bonds, Stocks, and Sources of Mispricing” by Doron Avramov
November 8, 2017 (Wednesday) | 2:30pm - 4:00pm
KK1121
Finance Seminar
Author:
Doron Avramov
The Hebrew University of JerusalemTarun Chordia
Emory UniversityGergana Jostova
George Washington UniversityAlexander Philipov
George Mason University
Market-wide sentiment and firm-level financial distress jointly drive asset overpricing. The intersection of high sentiment and financial distress characterizes episodes of inflated bond and stock prices, to the extent that these securities are correctly priced otherwise. Overvaluation is attributable to sentiment-driven investors, both retail and institutional, who underestimate the severe implications of financial distress for a firm's future prospects. Anomalous patterns in the cross-section of stock and bond returns emerge as overpricing is corrected.