We document a form of excess volatility that is irreconcilable with standard models of prices, and in particular cannot be explained by variation in the discount rates of rational agents. We compare behavior of prices to claims on the same stream of cash flows but with different maturities. Prices of long-maturity claims are dramatically more variable than justified by the behavior of short maturity claims. Our analysis suggests that investors pervasively violate the "law of iterated values."

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... e violations that we document are highly significant both statistically and economically, and are evident in all asset classes we study, including equity options, credit default swaps, volatility swaps, interest rate swaps, inflation swaps, and dividend futures. * We are grateful to Drew Creal, Lloyd Han, Lars Hansen, and Stavros Panageas for many insightful comments.