We develop a dynamic model of corporate investment and financing decisions in whichcorporate insiders have superior information about the firm's growth prospects. We show thatrms with positive private information can credibly signal their type to outside investors usingthe timing of corporate...

We conduct a laboratory experiment to study whether people in-tuitively use real-option strategies in a dynamic investment setting.The participants were asked to play as an oil manager and make pro-duction decisions in response to a simulated mean-reverting oil price.Using cluster analysis,...

This paper develops a liquidity measure tailored to the foreign exchange (FX) market, quanties the amount of commonality in liquidity across dierent exchange rates, and determines theextent of liquidity risk premiums embedded in FX returns. The new liquidity measure utilizesultra high frequency...

This paper reviews important concepts and methods that are useful for hypothesis testing.First, we discuss the Neyman-Pearson framework. Various approaches to optimalityare presented, including finite-sample and large-sample optimality. Then, some of the mostimportant methods are summarized, as...

Fund-of-funds (FoF) managers face the task of selecting a (relatively) small number ofhedge funds from a large universe of candidate funds. We analyse whether such a selectioncan be successfully achieved by looking at the track records of the available funds alone,using advanced statistical...

This chapter surveys theoretical research on the long-term performanceof xed-mix investment strategies. These self-nancing strategies rebalancethe portfolio over time so as to keep constant the proportionsof wealth invested in various assets. The main result is that wealthcan be grown from...

We develop a method that allows one to compute incomplete-market equilibria routinely forMarkovian equilibria (when they exist). The main difficulty to be overcome arises from the setof state variables. There are, of course, exogenous state variables driving the economy but, in anincomplete...

In this paper, we build a bridge between different reduced-form approaches to pricing defaultable claims. In particular, we showhow the well known formulas by Duffie et al. [12] and by Elliott et al.[14] are related. Moreover, in the spirit of Collin Dufresne et al. [8], wepropose a simple...

We introduce a framework for analyzing the interplay between credit risk and collateralmarket risk on loan pricing. To do this, we decompose any loan into an unsecured and asecured part. Further we explicitly consider the recovery process. The framework allows usto develop semi-analytical...

Based on the APARCH model and two outlier detection methods, we computereliable time series of volatility asymmetry for 49 countries with relatively few ob-servations. Results show a steady increase in the asymmetry over the years for mostcountries. We nd that economic development and market...