We derive the price of inflation-indexed bonds of which the payments are linked to a lagged price index, and solve for the optimal bond portfolio under both inflation and indexation lags in closed form. We show that indexation lags increase the number of state variables characterizing both the...

This paper studies the quantitative asset pricing implications of financial intermediary which faces an endogenous leverage constraint. I use a recursive method to construct the global solution that accounts for occasionally binding constraint. Quantitatively, the model generates a high and...

A common prediction of macroeconomic models of credit market frictions is that the tightness of financial constraints is countercyclical. As a result, theory implies a negative collateralizability premium; that is, capital that can be used as collateral to relax financial constraints provides...

We develop a continuous-time asset price model to capture short-run momentum and long-run reversal. By studying a dynamic asset allocation problem, we derive the optimal investment strategy in closed form and show that the combined momentum and reversal strategies are optimal. We then estimate...

Social interaction contributes to stochastic volatility and momentum in financial markets. By developing a simple evolutionary model of asset pricing and population game, we incorporate social interaction among investors with information uncertainty and show that social interaction leads to the...

Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make any economic or statistical sense to use the usual significance criteria for a newly discovered factor, e.g., a t-ratio greater than 2.0....

Heterogeneity and evolutionary behaviour of investors are two of the most important characteristics of financial markets. This papers incorporates the adaptive behavior of agents with heterogeneous beliefs and establishes an evolutionary capital asset pricing model (ECAPM) within the...

We propose a new way to conduct multiple hypothesis testing in economics research. Our framework allows for correlation among tests and incomplete data, both of which are prevalent in economic meta-analysis. Our simulations show that that our method is able to produce the correct p-value cutoff...

We introduce a heterogeneous agent asset pricing model in continuous-time to show that trend chasing, switching and herding all contribute to market volatility in price and return and volatility clustering, but their impact are different. On the one hand, the fluctuations of market price and...

We propose a continuous-time heterogeneous agent model consisting of fundamental, momentum, and contrarian traders to explain the significant time series momentum. We show that the market under-reacts in short-run and over-reacts in long-run when momentum traders dominate the market, which...