Extensions of expected utility theory are sensitive to the tail behavior of the portfolio return distribution and may not be approximated reliably through higher-order moment expansions. We develop a novel approach for model risk assessment based on a projection method and apply it to portfolio...

We develop a novel class of time-changed Lévy models which are tractable and readily applicable, capture the leverage effect, and exhibit pure jump processes with finite or infinite activity. Our models feature four nested processes reflecting market, volatility and jump risks, and observation...

We find that the degree and dynamics of sovereign bond market integration across 21 developed and 18 emerging countries is significantly heterogeneous. We show that better spanning can significantly enhance market integration through dissipating local risk premiums. Integration of the sovereign...

We present the symmetric thermal optimal path (TOPS) method to determine the time-dependent lead-lag relationship between two stochastic time series. This novel version of the previously introduced TOP method alleviates some inconsistencies by imposing that the lead-lag relationship should be...

We develop a dynamic tradeoff model to examine the importance of manager-shareholder conflicts in capital structure choice. Using panel data on leverage choices and the model's predictions for different statistical moments of leverage, we show that while refinancing costs help explain the...

This paper deals with efficient estimation in exchangeable nonlinear dynamic panel models with common unobservable factor. The specification accounts for both micro- and macro-dynamics, induced by the lagged individual observation and the common stochastic factor, respectively. For large...

We present a new theory of asset pricing and portfolio choices under asymmetric reasoning, contrast the predictions with those under asymmetric information, and present experimental evidence in favor of our theory. The Efficient Markets Hypothesis and its formal foundation, the Rational...

In this paper, we consider block trading strategies and characterize the times when a block trade is a popular choice. We also study the economic relevance of optimal liquidation strategies by calibrating a recent and realistic microstructure model with data from the Paris Stock Exchange. We...

This paper shows that the framework proposed by Barberis and Huang (2009) to incorporate narrow framing and loss aversion into dynamic models of portfolio choice and asset pricing can be extended to also account for probability weighting and for a value function that is convex on losses and...

We derive representations for the stock price drift and volatility in the equilibrium of agents with arbitrary, heterogeneous utility functions and with the aggregate dividend following an arbitrary Markov diffusion. We introduce a new, intrinsic characteristic of the aggregate dividend process...