This paper investigates whether the overpricing of out-of-the money single stock calls can be explained by Tversky and Kahneman's (1992) cumulative prospect theory (CPT). We argue that these options are overpriced because investors' overweight small probability events and overpay for such...

This paper applies the dichotomous theory of choice by Zou (2000a) tothe analysis of investmentstrategies and security markets. Issues concerning individualoptimality, (approximate) arbitrage,capital market equilibrium, and Pareto efficiency are studied undervarious market conditions. Among the...

The paper develops a novel realized matrix-exponential stochastic volatility model of multivariate returns and realized covariances that incorporates asymmetry and long memory (hereafter the RMESV-ALM model). The matrix exponential transformation guarantees the positivedefiniteness of the...

Given several studies (inputs) of some phenomenon of interest, each input presents an estimate of a key parameter with an associated estimated precision. The random-effects model used in meta-analysis estimates this parameter based on a decomposition of the error term into within-input noise and...

Liquidity suppliers lean against the wind. We analyze whether high-frequency traders (HFTs) lean against large institutional orders that execute through a series of child orders. The alternative is HFTs trading "with the wind," that is, in the same direction. We find that HFTs initially lean...

Locally explosive behavior is observed in many economic and financial time series when bubbles are formed. We introduce a time-varying parameter model that is capable of describing this behavior in time series data. Our proposed model can be used to predict the emergence, existence and burst of...

We measure the economic effects of urban growth boundaries or greenbelts that prohibit new construction beyond a predefined urban fringe. We focus on England, where 13% of the land area is designated as greenbelt land. Using spatial differencing, we show that the external effects of these...

We analyze whether financial integration between countries leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of...

We find that investor sentiment should affect a firm's employment policy in a world with moral hazard and noise traders. Consistent with the model's predictions, we show that higher sentiment among US investors leads to: (1) higher employment growth worldwide; (2) lower labor productivity, as the...