This paper builds a dynamic general equilibrium macro-finance model with two types of borrowers: entrepreneurs who want to produce and gamblers who want to play a lottery. It links central bank's interest rate policy to expected cash flows of both types. This link enables us to study how the...

A Capital Asset Pricing Model of a stock market economy is examined under different corporate governance structures in which the objectives of managers and entrepreneurs in choosing the risk composition of their firms' returns are not aligned with those of shareholders and investors because of...

In a three-period finite competitive exchange economy with incomplete financial markets and retrading, we show the generic existence of financial innovation which decreases equilibrium price volatility (as well as innovation which increases it). The existence is obtained under conditions of...

In this paper, the authors study the possibility of controlling asset price volatility through financial innovation in a three-period finite competitive exchange economy with incomplete financial markets and retrading.

High frequency arbitrage opportunities arise when the price of one asset follows, with a lag, changes in the value of another related asset due to information arrival. These opportunities are toxic because they expose liquidity suppliers to the risk of being picked off by arbitrageurs. Hence,...

High frequency arbitrage opportunities sometimes arise when the price of one asset follows, with a lag, changes in the value of another related asset due to information arrival. These opportunities are toxic because they expose liquidity suppliers to the risk of being picked off by arbitrageurs....