Asset Pricing.

• Position: National Bureau of Economic Research's program

The NBER's Program on Asset Pricing met in Cambridge on November 14. Program Director John H. Cochrane, University of Chicago, and Tobias J. Moskowitz, NBER and Northwestern University, organized this program:

Lubos Pastor and Pietro Veronesi, NBER and University of Chicago, "Stock Prices and IPO Waves" Discussant: Deborah J. Lucas, NBER and Northwestern University

Anna Pavlova, MIT, and Roberto Rogobon, NBER and MIT, "Asset Prices and Exchange Rates" Discussant: Pedro Santa-Clara, University of California, Los Angeles

Bryan R. Routledge, Carnegie Mellon University, and Stanley E. Zin, NBER and Carnegie Mellon University, "Generalized Disappointment Aversion and Asset Prices" Discussant: Thomas Knox, University of Chicago

Robert J. Hodrick and Andrew Ang, NBER and Columbia University, Yuhang Xing, Rice University; and Xiaoyan Zhang, Cornell University, "The Cross-Section of Volatility and Expected Returns" Discussant: Jun Pan, MIT

Michael W. Brandt, Duke University, and Alessandro Beber, University of Lausanne, "The Effect of Macroeconomic News on Beliefs and Preferences: Evidence from the Options Market" Discussant: Andrew W. Lo, NBER and MIT

Wei Xiong and Jose Scheinkman, Princeton University, and Harrison Hong, Stanford University, "Asset Float and Speculative Bubbles" Discussant: Lasse Pedersen, New York University

Pastor and Veronesi explore why IPO volume changes over time and how it relates to stock prices. They develop a model of optimal IPO timing in which IPO volume fluctuates because of time variation in market conditions. IPO waves are caused by declines in expected market return, increases in expected aggregate profitability, or increases in prior uncertainty about the average future profitability of IPOs. The model makes numerous predictions for IPO volume, for example that IPO waves are preceded by high market returns and followed by low market returns. The data support these and other predictions.

Pavlova and Rigobon develop a simple two-country, two-good model in which the real exchange rate and prices of stocks and bonds are determined jointly. The model predicts that stock market prices are correlated internationally, even though their dividend processes are independent. This provides a theoretical argument in favor of financial contagion. The foreign exchange market serves as a propagation channel from one stock market to the other. The model identifies interconnections among stock, bond, and foreign exchange markets and...