It is well established that recent prior winner and loser stocks exhibit return continuation; a momentum strategy of buying recent winners and shorting recent losers appears profitable in the post 1945 era. In contrast, the risk exposure of such a strategy has not been well understood; the...

We study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. We present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model produces large...

Equity costs of capital for individual firms are estimated using several models that relate expected returns to betas on one or more pervasive factors. A Bayesian approach incorporates prior uncertainty about an asset's mispricing as well as uncertainty about betas and factor means. Substantial...

We examine the effects of human capital on consumption, stock market, and other fluctuations in a general equilibrium continuous-time model. A representative consumer-worker-investor derives utility from consumption and leisure. A representative firm demands labour as the sole input to a...

This paper examines the optimal consumption and investment problem for a "large" investor, whose portfolio choices affect the instantaneous expected returns on the traded assets.

This paper develops a general equilibrium, continuous time model where portfolio constraints generate mispricing between redundant securities. Constrained consumption-portfolio optimization techniques are adapted to incorporate redundant, possibly mispriced, securities. We demonstrate the...

Chicago-based Morningstar rates the investment performance of mutual funds, assigning one to five stars with five being the best rating. This paper first documents the method that Morningstar uses in assigning these widely circulated ratings and then explores in detail the implications for the...

We examine whether bond ratings contain pricing relevant information, that is unavailable to investors form other sources, by focusing on investor reaction to rating changes that were not accompanied by any economic fundamental event - Moody's refinement of its rating system. This refinement was...

In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades, This fact has led some to conclude that the creidt quality of US corporate debt has declined. However, declining credit quality is not the only possible explanation. An alternative...