Promising emerging equity markets often witness investment herds and frenzies, accompanied by an abundance of media coverage. Complementarity in information acquisition can explain these anomalies. Because information has a high fixed cost of production, its equilibrium price is low when...

This paper addresses the relationship between individual perceptions and the uses of a business language. Perceptions are modeled explicitly, and are not common knowledge. A business language enables individuals with different perceptions to trade. I present a formal criterion for faithfulness...

We report results of an internet experiment designed to test the theory of informational cascades in financial markets. More than 6000 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. As predicted by theory, we find that...

Credit sharing information mechanisms represent the institutional answer to the asymmetric information problems inherent to credit markets. It is generally accepted that sharing information is beneficial for the participant institutions, however, there are few studies that have measured the...

It is known that stock returns are affected by monetary policy. This paper theoretically and empirically investigates whether asymmetric information between the Federal Reserve and the public causes the relation between stock returns and monetary policy actions. The paper concludes that...

We study how heterogeneous beliefs affect returns and examine whether heterogeneous beliefs are a priced factor in traditional asset pricing models. To accomplish this task, we suggest new empirical measures based on the disagreement among analysts about expected (short-term and long-term)...

Most investors purchase securities knowing they will resell those securities in the future. Uncertainty about the preferences of future trading counter-parties causes randomness in future resale prices that we call liquidity risk. It is natural to suppose that investors are asymmetrically...

``Limits of Arbitrage" theories require that the marginal investor in a particular asset market be a specialized arbitrageur. Then the constraints faced by this arbitrageur (i.e. capital constraints) feed through into asset prices. We examine the mortgage-backed securities (MBS) market in this...

This paper examines the long-run dynamics and the cyclical structure of the US stock market using fractional integration techniques. We implement a version of the tests of Robinson (1994a), which enables one to consider unit (or fractional) roots both at the zero (long-run) and at the cyclical...

Consider the case of a firm with private valuation information bargaining with a supplier over the price and quantity of a good. If the firm and the supplier bargain directly, the bargaining outcome may not yield a first-best outcome due to the presence of information rents. The question we...