The dangers of shouting \re" in a crowded theater are well understood, but the dangers of rushing to the exit in the nancial markets are more complex. Yet, the two events share several features, and I analyze why people crowd into theaters and trades, why they run, what determines the risk,...

This paper derives in closed form the optimal dynamic portfolio policy when trading is costly and security returns are predictable by signals with dierent mean-reversion speeds. The optimal updated portfolio is a linear combination of the existing port- folio, the optimal portfolio absent...

In a model with multiple agents with different risk aversions facing margin constraints, we show how securities’ required returns are characterized both by their beta and their margins. Negative shocks to fundamentals make margin constraints bind, lowering risk free rates and raising Sharpe...