Asset Pricing.

• Position: Bureau News

The NBER's Program on Asset Pricing met in Chicago on April 11. Program Director John H. Cochrane and Lubos Pastor, both of NBER and University of Chicago, organized the meeting. These papers were discussed:

Antonios Sangvinatsos, New York University, and Jessica Wachter, NBER and New York University, "Does the Failure of the Expectations Hypothesis Matter for Long-Term Investors?" Discussant Kenneth J. Singleton, NBER and Stanford University

Jun Pan, MIT, and Allen M. Poteshman, University of Illinois, "The Information in Option Volume for Stock Prices"

Discussant: Michael W. Brandt, NBER and University of Pennsylvania

Robert F. Stambaugh, NBER and University of Pennsylvania, "Inference About Survivors"

Discussant: Christopher Jones, University of Southern California

Maria Vassalou and Yuhang Xing, Columbia University, "Default Risk in Equity Returns"

Discussant: Ravi Jagannathan, NBER and Northwestern University

Robert F. Dittmar and Christian T. Lundblad, Indiana University, and Ravi Bansal, Duke University, "Interpreting Risk Premia Across Size, Value and Industry Portfolios"

Discussant: Lars P. Hansen, NBER and University of Chicago

Owen A. Lamont, NBER and University of Chicago, "Go Down Fighting: Short Sellers vs. Firms"

Discussant: William N. Goetzmann, NBER and Yale University

Sangvinatsos and Wachter consider the consumption and portfolio choice problem of a long-run investor who has access to nominal bonds and a stock portfolio. In the presence of unhedgeable inflation risk, there are multiple pricing kernels that produce the same bond prices, but a unique pricing kernel that equals the marginal utility of the investor. The authors extend their model to account for time-varying expected inflation and estimate it with data on inflation and term structure. The estimates imply that the bond portfolio for the long-run investor looks very different from the portfolio of a mean-variance optimizer. In particular, the desire to hedge changes in term premiums generates large hedging demands for long-term bonds.

Pan and Poteshman find strong evidence of information transmission from the options market to underlying stock prices. Taking advantage of a unique dataset from the Chicago Board of Options Exchange, the authors construct put-to-call volume ratios for underlying stocks, using only volume initiated by buyers to open new option positions. Performing daily cross-sectional analyses from 1990 to 2001, they find that buying stocks with...