We study an extension of the classical B1ack-Scholes model which accounts for feedback effects from trading in an imperfectly elastic market. The proposed semi-martingale model may be viewed as a compromise between the diffusion approach in, e.g., (Cuoco and Cvitanic 1998), (Cvitanic and Ma...

In this paper we motivate, specify and estimate a model in which the intra-day volatilty process affects the inter-transaction duration process and vice versa. In order to solve the estimation problems implied by this interdependent formulation, we first propose a GMM estimation procedure for...

Although stock splits seem to be a purely cosmetic event, there exists ample empirical evidence from the United States that stock splits are associated with abnormal returns on both the announcement and the execution day, and additionally with an increase in variance following the ex-day. This...

In this paper we investigate four hypotheses which are inconsistent with expected utility theory, but may well be explained by prospect theory. It deals with framing, the non-linearity of subjective probabilities, the disposition effect, and the correspondence of different experimental risk...

The analysis of diffusion processes in financial models is crucially dependent on the form of the drift and diffusion coefficient functions. A methodology is proposed for estimating and testing coefficient functions for ergodic diffusions that are not directly observable. It is based on...

This paper tests the validity of Present Value (PV) models of stock prices by employing a two-step strategy for testing the null hypothesis of no cointegration against alternatives which are fractionally cointegrated. Monte Carlo simulations are conducted to evaluate the power and size...

We consider a financial market model with a large number of interacting agents. Investors are heterogeneous in their expectations about the future evolution of an asset price process. Their current expectation is based on the previous states of their "neighbors" and on a random signal about the...

According to the Sharpe-Lintner capital asset pricing model, expected rates of return on individual stocks differ only because of their different levels of non-diversifiable risk (beta). However, Fama/French (1992) show that the two variables size and book-to-market ratio capture the...

The so-called 'Monday effect ' has been found for various stock markets of the world. The empirical finding that Monday returns are significantly smaller than returns measured for the remaining days of the week calls the efficiency hypothesis for pricing processes operating on stock markets into...

The Normal Inverse Gaussian (NIG) distribution recently introduced by Barndorff-Nielsen (1997) is a promising alternative for modelling financial data exhibiting skewness and fat tails. In this paper we explore the Bayesian estimation of NIG-parameters by Markov Chain Monte Carlo Methods. --...