We can only estimate the distribution of stock returns but we observe the distribution of risk neutral state prices. Risk neutral state prices are the product of risk aversion - the pricing kernel - and the natural probability distribution. The Recovery Theorem enables us to separate these and...

type="main" xml:lang="en" <title type="main">ABSTRACT</title> <p>Firms and institutions are monitored and controlled through a complex set of implicit and explicit contractual relations. Because of these agency theoretic relations, institutional behavior in financial markets is not a simple reflection of the preference...</p>

This three-volume collection – prepared by a leading scholar and practitioner – presents the subject through a collection of important published articles on the debt market.

We develop a model of optimal investment with two types of agents with different beliefs about the market dynamics. Market conformists agree with the true log-normal price distribution and rebels believe in price predictability. Depending on their exact beliefs, the rebels may follow either a...

The Modigliani-Miller theorem on the irrelevancy of financial structure implicitly assumes that the market possesses full information about the activities of firms. If managers possess inside information, however, then the choice of a managerial incentive schedule and of a financial structure...