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...

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...

A government policy regarding the reduction of state shares in state-owned enterprises (SOE) triggered a crash in the Chinese stock market. The sus- tained depression even after policy adjustments constitutes a puzzle— the so called “state-share paradox.”The empirical evidence shows...

The sources of "total factor productivity (TFP) growth" or the "Solow residual" typically remain unknown as a residual. This paper aims to identify the underlying sources of this residual growth, being explicit about micro underpinnings and transitional growth from occupation choices of...

A government policy regarding the reduction of state shares in state-owned enterprises (SOE) triggered a crash in the Chinese stock market. The sus- tained depression even after policy adjustments constitutes a puzzle— the so called “state-share paradox.”The empirical evidence shows...

The financial crisis in 1997 caused serious deterioration of the Korean economy. We examined the credit crunch in Korea and how it affected household welfare. With household panel data from 1996-1998, we estimated a switching regression model of a consumption Euler equation, which is augmented...

We develop a simple analytical model that highlights the effect of factor rigidities and credit constraints on bankruptcies. In our model, entrepreneurs receive random shocks –positive or negative-- to their working capital, which is needed to pay workers before the output of the firm is...