Empirical methods in corporate finance for some time focused on the short-term market reaction to corporate announcements. The associated theories rely heavily on market imperfections such as taxes, transaction costs, information issues and contracting problems to obtain short-term market...

The q-theory explanations of asset pricing anomalies are quantitatively important. We perform a new asset pricing test by using GMM to minimize the difference between average stock returns in the data and average investment returns constructed from observable firm characteristics. Under various...

Evidence of stock return predictability by financial ratios is still controversial, as documented by inconsistent results for in-sample and out-of-sample regressions and by substantial parameter instability. This paper shows that these seemingly incompatible results can be reconciled if the...

How do movements in the distribution of income and wealth affect the macroeconomy? We create two economies where the only difference between them lies in the initial distribution of economic resources and the degree of frictions in financial markets. Generally, these economies eventually reach...

Financial liberalization is a controversial issue. One of the reasons is that many empirical studies report conflicting views. So far, negligible effects were found in savings and lending, while positive effects in allocating capital efficiently. However, these regression based studies are not...

This paper demonstrates that a simultaneous-move herd behavior model generates a fat-tailed distribution of traders' aggregate actions. Each trader infers other traders' private information on the value of assets by observing their actions and decides whether to buy the asset or not. We show...