In this article we analyse the effects of different regulatory schemes (price cap and profit sharing) on a firm’s investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not affect a firm’s start-up decision relative to a pure price...

We investigate the dynamics of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model with long-term investors. We argue that the fact that prices can score worse or better than consensus opinion in predicting the fundamentals is a product of...

We consider a two-period market with persistent liquidity trading and risk averse privately informed investors who have a one period horizon. With persistence, prices reflect average expectations about fundamentals and liquidity trading. Informed investors engage in “retrospective” learning...