Scott Condie

This paper considers the effect on asset prices of investors contemplating the possible occurrence of unexpected and unprecedented events that they have no basis to evaluate. We build a Capital Asset Pricing Model (CAPM) where, in addition to regular risk, investors are aware that they are potentially unaware of some events. We show that when investors feel that there exist states about which they are unaware, asset prices contain an unawareness premium. A driving force is that the “risk free” asset is no longer considered to be truly risk free. We develop a methodology that enables us to estimate the systematic portion of the unawareness premium, and we estimate it using daily data from 1980 to 2021. This unawareness premium implies a theoretical motivation behind the correlation between estimated asset alphas and betas in the cross section. We find evidence in support of the hypothesis that unawareness, in addition to risk, is a determinant of expected equity returns. This additional factor adds insights into asset market behavior around market run ups like those during the dot com boom and the pre-financial crisis market outperformance.

This paper studies equilibrium order book formation in a limit-order market by building a search-theoretic model where the shape of the order book and its spread are determined jointly in equilibrium. The model characterizes liquidity as a function of differences in valuation between sellers and buyers, beliefs about the probability distribution of the arrival of buyers and sellers, exchange fees, and preference parameters like patience and beliefs about the expected lifespan of information. The efficiency of the market is characterized as a function of these parameters. We demonstrate how to extract the model’s parameters from order book data and, using a sample of data from Coinbase’s Bitcoin/U.S. Dollar exchange, characterize market liquidity as a function of these factors. We derive the optimal timing of frequent batch auctions in our model and show how this timing can be calculated for all limit-order markets.

This paper studies the welfare and asset pricing consequences of market panics driven by ambiguity aversion. When information is perceived to be highly ambiguous, ambiguity-averse traders exit the market entirely, raising the risk premium and creating opposing effects for expected-utility traders who remain: a wealth loss from falling prices and an expanded trading opportunity from reduced risk sharing. This paper characterizes the size of these effects and their impact on welfare. In a two-period extension the premium associated with the possibility of a future panic is calculated. Even when all fundamental uncertainty is normal, the distribution of interim prices is left-skewed and fat-tailed. Price variance decomposes into a fundamental component and an ambiguity-driven component, providing structural microfoundations for well-documented non-normalities in equity returns.

Most institutional portfolios are overseen by an investment committee that has formal authority over the portfolio manager’s decisions. These committee members often bring diverse perspectives and expertise. This paper develops a model of institutional portfolio management in which investment decisions are subject to oversight by a committee with heterogeneous beliefs and risk preferences. Since the committee’s effective beliefs and risk aversion governing portfolio choice can reflect changes in committee preferences and power dynamics within a committee, the resulting portfolio of the committee is subject to what we call oversight risk. This paper characterizes the consequences of oversight risk for portfolio performance. There are at least two channels through which oversight risk can operate: fluctuations in effective risk aversion and fluctuations in effective beliefs. We show that fluctuations in effective risk aversion affect all standard performance metrics—Sharpe ratio, beta, Jensen’s alpha, and the Information Ratio—through a market-timing channel whose direction depends on the correlation between risk aversion and market returns. Fluctuations in effective beliefs erode performance by increasing portfolio churn without necessarily generating compensating active returns. Simulations calibrated to monthly U.S. equity sector data spanning March 1970 to December 2025 confirm these predictions and document a skill–noise tradeoff in which committee skill raises expected performance while oversight noise widens the distribution of outcomes. Implications for investment committees are provided.