Price discrepancies, although at odds with mainstream finance, are persistent phenomena in financial markets. These apparent mispricings lead to the presence of ‘arbitrageurs’, who aim to exploit the resulting profit opportunities, but whose role remains controversial. This article...

This article analyzes the implications of money illusion for investor behavior and asset prices in a securities market economy with inflationary fluctuations. We provide a belief-based formulation of money illusion which accounts for the systematic mistakes in evaluating real and nominal...

This article studies the dynamic behaviour of security prices in the presence of investors’ heterogeneous beliefs. We provide a tractable continuous-time pure-exchange model and highlight the mechanism through which investors’ differences of opinion enter into security prices. In the...

I show how to construct a stochastic long-lived overlapping generation’s model that is based on a non-stochastic model developed by Olivier Blanchard and Philippe Weil and that nests the RBC model as a special case. My innovation over previous work is to add an aggregate stochastic shock. I...

This paper describes the equilibrium of a discrete-time exchange economy in which consumers with arbitrary subjective discount factors and quasi-homothetic period utility functions follow linear Markov consumption and portfolio strategies. Explicit expressions are given for state prices and...

The theory and the data in this Paper challenge the view that there is no structure in prices and allocations when markets are off equilibrium. Starting from the observation that price-taking usually applies only to small orders, a theory of equilibration is derived based on the assumption that...

This paper analyzes the asset pricing implications of commonly-used portfolio management contracts linking the compensation of fund managers to the excess return of the managed portfolio over a benchmark portfolio. The contract parameters, the extent of delegation and equilibrium prices are all...

Recent studies have found unmeasured intangible capital to be large and important. In this paper we observe that by nature intangible capital is also very different form physical capital. We find it plausible to argue that the accumulation process for intangible capital differs significantly...

This Paper studies equilibrium asset pricing with liquidity risk (the risk arising from unpredictable changes in liquidity over time). It is shown that the required return on a security depends on its expected illiquidity, the covariances of its own return, illiquidity with market return, and...

In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained inefficiency corresponds to a feasible redistribution yielding a welfare improvement beginning from every contingency reached by the economy. A sort of Cass Criterion (Cass (1972))...