In this paper we present a two period model, where the agent's preferences are described by prospect theory as proposed by Kahneman and Tversky. We solve for the agent's portfolio decision. Our findings are that the changes in portfolio weights depend crucially on the reference point and the...

Using trading data from a sports-wagering market, we estimate individuals' dynamic risk preferences within the prospect-theory paradigm. This market's experimental-like features facilitate preference estimation, and our long panel enables us to study whether preferences vary across individuals...

This article analyzes the effect of liquidity risk on the performance of various hedge fund portfolio strategies. Similarly to Avramov et al. (2007), we find that, before accounting for the effect of liquidity risk, hedge fund portfolios that incorporate predictability in managerial skills...

We introduce a model for portfolio selection with an extendable investment universe where the agent faces a trade-off between exploiting existing and exploring for new investment opportunities. An agent with mean-variance preferences starts with an existing investment universe consisting of a...

Hedge funds significantly reduced their equity holdings during the recent financial crisis. In 2008Q3-Q4, hedge funds sold about 29% of their aggregate portfolio. Redemptions and margin calls were the primary drivers of selloffs. Consistent with forced deleveraging, the selloffs took place in...

We find evidence that hedge funds significantly manipulate stock prices on critical reporting dates. We document that stocks held by hedge funds experience higher returns on the last day of the quarter, followed by a reversal the next day. For example, the stocks in the top quartile of hedge...

We show that mutual funds compete for climate-conscious investment flows. In April 2018, Morningstar introduced a climate-focused label for mutual funds. The release of the "Low Carbon Designation" induced reactions on both the demand and supply sides of the market. First, investors flocked to...

We propose a novel way of measuring the equity portfolio-level environmental and social characteristics of a 13F institution (the “sustainability footprint”) and examine the relation between sustainability footprints and risk-adjusted investment performance. The analysis shows that 13F...

We derive closed form expressions for equilibrium asset prices and liquidity in an economy populated by a finite number of large, strategic, risk averse investors. The model allows for arbitrary risk preferences, any number of assets, and an arbitrary distribution of asset payoffs. In...

Mutual funds are mandated by the Securities and Exchange Commission (SEC) to disclose information on their investment objectives and risks. In this paper, we study the informational value of U.S. mutual funds' qualitative disclosures by analyzing the content of funds' prospectuses. First, we...