The goal of this paper is to assess, for the first time, the empirical impact of "Kaynes' beauty contest", or "higher order belief", on asset price volatility. The paper shows that heterogeneous expectations induce higher order beliefs and that heterogeneous expectation asset pricing models...

We examine the underpricing and long-term performance of a broad set ofSwiss IPOs from 1983 to 2000. The average market adjusted initial return is34.97%. Our results support the ex ante uncertainty hypothesis, the signal-ling hypothesis and, to some extent, the market cyclicality hypothesis...

This paper presents a new method to detect informed trading activities in the options markets.An option trade is identified as informed when it is characterized by an unusual largeincrement in open interest and volume, induces large gains, and is not hedged in the stock market.For the period...

This paper studies the relationship between investor protection, financial risk sharing and income inequality. In the presence of market frictions, better protection makesinvestors more willing to take on entrepreneurial risk while lending to firms. This implies lower cost of external finance...

We use portfolio theory to quantify the efficiency of state-level sectoral patterns of production in the United States. On the basis of observed growth in sectoral value-added output, we calculate for each state the efficient frontier for investments in the real economy. We study how rapidly...

We analyze the problem of real optimal asset allo cation for a p ensionfund maximising the exp ected CRRA utility of its real disp osable wealth.The financial horizon of the analysis coincides with the random deathtime of a representative subscriber. We consider a very general settingwhere...

Purpose of this paper: we study the asset allocation problem for a pension fund which maximizes the expected present value of its wealth augmented by the prospective mathematical reserve at the death time of a representative member. Design/methodology/approach: we apply the stochastic...

This paper uses a new approach to determine the fraction of truly skilled managers among the universe of U.S. domestic-equity mutual funds over the 1975 to 2006 period. We develop a simple technique that properly accounts for “false discoveries,” or mutual funds which exhibit significant...

In a financial market with one riskless asset and n risky assets following geometric Brownian motions, we solve the problem of a pension fundmaximizing the expected CRRA utility of its terminal wealth. By considering a stochastic death time for a subscriber, we solve a unique problem for both...

We analyse questions of arbitrage in financial markets in which asset prices change in time as stationary stochastic processes. The main focus of the paper is on a model where the price vectors are independent and identically distributed. In the framework of this model, we find conditions that...