We solve a portfolio choice problem when expected returns, covariances, and trading costs follow a regime-switching model. The optimal policy trades towards an aim portfolio given by a weighted-average of the conditional mean-variance-efficient portfolios ...
We model oil price dynamics in a general equilibrium production economy with two goods: a consumption good and oil. Production of the consumption good requires drawing from oil reserves at a fixed rate. Investment necessary to replenish oil reserves is cos ...
We investigate the cross-sectional variation in the credit default swap (CDS)-bond bases and test explanations for the violation of the arbitrage relation between cash bond and CDS contract, which states that the basis should be zero in normal conditions. ...
We study the extent to which credit index (CDX) options are priced consistent with S&P 500 (SPX) equity index options. We derive analytical expressions for CDX and SPX options within a structural credit-risk model with stochastic volatility and jumps using ...
Parameter learning strongly amplifies the impact of macroeconomic shocks on marginal utility when the representative agent has a preference for early resolution of uncertainty. This occurs as rational belief updating generates subjective long-run consumpti ...
Using a comprehensive sample of trades by Schedule 13D filers, who possess valuable private information when they accumulate stocks of targeted companies, this paper studies whether several liquidity measures reveal the presence of informed trading. The ev ...
Many leading asset pricing models are specified so that the term structure of dividend volatility is either flat or upward sloping. These models predict that the term structures of expected returns and volatilities on dividend strips (i.e., claims to divid ...
Many leading asset pricing models predict that the term structure of expected returns and volatilities on dividend strips are upward sloping. Yet the empirical evidence suggests otherwise. This discrepancy can be reconciled if EBIT dynamics are combined wi ...
We examine the dynamics of liquidity using a comprehensive sample of U.S. stocks in the post-decimalization period. Motivated by a continuous-time inventory model, we compute a high-frequency measure of order imbalance volatility to proxy for the inventory ...
We investigate the impact of an exogenous trading glitch at a high-frequency market-making firm on standard measures of stock liquidity (spreads, price impact, turnover, and depth) and institutional trading costs (implementation shortfall and VWAP slippage ...
We investigate a structural model of market and firm-level dynamics in order to jointly price long-dated S&P 500 index options and CDO tranches of corporate debt. We identify market dynamics from index option prices and idiosyncratic dynamics from the term ...
We consider a Kyle (1985) one-period model where insider trading may be subject to a penalty that is increasing in trade size. We characterize the solution - the equilibrium price and optimal trading strategy explicitly and establish existence and uniquene ...
We extend Kyle's (1985) model of insider trading to the case where noise trading volatility follows a general stochastic process. We determine conditions under which, in equilibrium, price impact and price volatility are both stochastic, driven by shocks t ...
When activist shareholders file Schedule 13D filings, the average excess return on target stocks is 6% and stock price volatility drops by about 10%. Prior to filing days, volatility (price) information is reflected in option (stock) prices. Using a compre ...
Reduced-form models of default that attribute a large fraction of credit spreads to compensation for credit-event risk typically preclude the most plausible economic justification for such risk to be priced, namely, a contemporaneous drop in the market por ...
Using a comprehensive sample of trades from Schedule 13D filings by activist investors, we study how measures of adverse selection respond to informed trading. We find that on days when activists accumulate shares, measures of adverse selection and of stoc ...
Despite regulatory efforts to promote all-to-all trading, the post-Dodd-Frank index credit default swap market remains two-tiered. Transaction costs are higher for dealer-to-client than interdealer trades, but the difference is explained by the higher, lar ...
We analyze dynamic trading by an activist investor who can expend costly effort to affect firm value. We obtain the equilibrium in closed form for a general activism technology, including both binary and continuous outcomes. Variation in parameters can pro ...
