We decompose the structural estimate of the probability of informed trading, PIN, into components that capture informed trading on good and on bad news. We estimate these two components at quarterly intervals, and provide new evidence that they capture informed trading around earnings...

This paper analyzes the Amihud (2002) measure of illiquidity and its role in asset pricing. It is shown first that the effect of illiquidity on asset pricing is clarified by using the turnover version of the Amihud measure and including firm size as a separate variable. When we decompose the...

We show that, when stock prices are subject to stochastic mispricing errors, as a result of Jensen's inequality, expected rates of return may depend not only on the fundamental risk that is captured by a standard asset pricing model, but also on the type and degree of asset mispricing, even when...

In this paper we analyze the arbitrage gains from marketing structured debt securities at yields that reflect only the credit ratings of ratings agencies. The credit ratings considered include one that is based on default probabilities, corresponds to the credit ratings of Standard and Poor's,...

In this paper we present new empirical evidence on the agency based asset pricing model of Brennan (1993). We find strong evidence that in the recent period stocks whose returns covary more with the idiosyncratic component of the Samp;P500 return have significantly lower returns, holding...

The relation between the volatilities of pricing kernels associated with different currencies and the volatility of the exchange rate between the currencies is derived under the assumption of integrated capital markets, and the volatilities of the pricing kernels are related to the foreign...

We analyze the risk characteristics and the valuation of assets in an economy in which the investment opportunity set is described by the real interest rate and the maximum Sharpe ratio. It is shown that, holding constant the beta of the underlying cash flow, the beta of a security is a function...

A simple valuation model that allows for time variation in investment opportunities is developed and estimated. The model assumes that the investment opportunity set is completely described by two state variables, the real interest rate and the maximum Sharpe ratio, which follow correlated...

The optimal bond-stock mix is examined in light of an apparent inconsistency between the Tobin Separation Theorem and the advice of popular investment advisors which has been pointed out by Canner et al. (1997). It is shown that the apparent inconsistency is largely explicable in terms of the...

This paper develops a simple framework for analyzing the asset allocation problem of a long-horizon investor when there is inflation and only nominal assets are available for trade. The investor's optimal investment strategy is given in simple closed form using the equivalent martingale method....