Annuities are perceived as being illiquid financial instruments, and this has limited their attractiveness to consumers and inclusion in financial models. However, short positions in annuities can be replicated using life insurance and debt, permitting long positions in annuities to be offset,...

This study presents and empirically tests a simple framework that examines the effects of market liquidity (the ease with which stocks are traded) and funding liquidity (the ease with which market participants can obtain funding) on stock market bubbles. Three key findings emerge from this...

Speculators can discover whether a signal is true or false by processing it but this takes time. Hence they face a trade-off between trading fast on a signal (i.e., before processing it), at the risk of trading on a false news, or trading after processing the signal, at the risk that prices...

This paper introduces a novel kind of interest-rate model offering simple analytical pricing formulas for swaps, futures, swaptions, caps and floors. The model is based on an original use of regime-switching features that makes it consistent with the non-linear behavior of interest rates. In...

This paper develops a broad-based sentiment indicator for Germany and investigates whether investor sentiment can explain stock returns on the German stock market. Based on a principal component analysis, we construct a sentiment indicator that condenses information of several well-known...

This article documents how the changing composition of U.S. publicly traded firms has prompted a decline in the long-run mean of the aggregate dividend-price ratio, most notably since the 1970s. Adjusting the dividend-price ratio for such changes resolves several issues with respect to the...

It is a stylized fact that trade indicator models (e.g. Madhavan, Richardson, and Roomans (1997) and Huang and Stoll (1997)) underestimate the bid-ask spread. We argue that this negative bias is due to an endogeneity problem which is caused by a negative correlation between the arrival of public...

Recently there has been a rapid growth in the assets managed by hedged mutual funds - mutual funds mimicking hedge funds strategies. In this paper, we examine the performance of these funds relative to hedge funds and traditional mutual funds. We find that despite their use of similar trading...

More and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. To answer this question we implement a simple trading...

Recently, there has been explosive growth in two products from the hedge fund industry - multi-strategy (MS) funds and funds of hedge funds (FOFs), both of which offer diversification across different hedge fund strategies. In well-functioning markets, both investment vehicles should offer...