The hottest Asset Pricing Substack posts right now

Big forces can often be hidden and not immediately obvious, impacting decision making.
Technology like AI can be a major productivity booster but may also cause wealth inequality.
Understanding economic growth and spending is crucial for evaluating stock and bond pricing.

Investors should focus on different dimensions of risk for expected returns in investment decisions, rather than trying to pick individual stocks
Academic challenges exist in finding factors that perform well in out-of-sample tests for factor-based investing
Traditional factor investing methods may face challenges when applied to asset-heavy passthrough entities like REITs

Many investors treat very expensive stocks like lottery tickets, hoping for a rare big payoff instead of focusing on realistic expected returns.
Surveys and analyst reports find the majority (about 60% overall and 81% of retail investors) hold high-valuation stocks because they expect high future returns, while far fewer cite superior fundamentals (~15%) or safer past performance (<10%).
These beliefs contradict finance theory and empirical evidence, yet investors remain convinced and continue to hold expensive stocks despite knowing their high valuations.

Understanding finance is really important for macroeconomics. It helps us figure out how markets work and how different factors impact the economy.
The no-arbitrage principle in finance shows that prices should adjust quickly to eliminate profit opportunities. This means that if something is cheaper in one place, it won't stay that way for long.
We can analyze macroeconomic theories using tools from price theory. This allows us to test predictions and better understand how things like interest rates and asset prices relate to the economy.

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The CAPM model has flaws and many people have shifted to using better methods for measuring risk and estimating returns. It's criticized for being too simple and for its dependence on past market prices.
Multi Beta Models and Market Price based Models offer alternatives to CAPM by considering multiple factors or standard deviations instead of relying on a single market beta. These models are intended to improve return estimates but have their own complexities.
Accounting information based models use a company's financial health as a measure of risk. They connect risk to fundamental business factors but can be misleading due to the way accounting numbers are reported.

All assets are considered illiquid, meaning they can't always be sold quickly at their current price without costs involved. This changes how we understand and measure the value of assets.
Illiquidity varies between different asset classes, like real estate being less liquid compared to stocks and bonds. Some stocks are also more liquid based on their size and price.
Investors care about liquidity because it affects asset prices and returns. Illiquid assets tend to have lower prices and higher expected returns, especially during market crises.