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...

In a numéraire-independent framework, we study a financial market with N assets which are all treated in a symmetric way. We define the fundamental value *S of an asset S as its superreplication price and say that the market has a strong bubble if *S and S deviate from each other. None of these...

We analyze a dynamic model of informed trading where a shareholder accumulates shares in an anonymous market and then expends costly effort to change the firm value. We find that equilibrium prices are affected by the position accumulated by the shareholder, because the level of effort...

The impact of U.S. bank loan announcements on the stock prices of the corporate borrowers has been decreasing during the two last decades with estimated two-day cumulative abnormal returns slipping from almost 200 basis points in the beginning of the 1980s to close to zero by the turn of the...

Large investors often advertise private information at private talks or in the media. To analyse the incentives for information disclosure, I develop a two-period Kyle (1985) type model in which an informed short-horizon investor strategically discloses private information to enhance price...

We advance the feedback/cash as ammunition hypothesis, namely that firms hold cash to address feedback from stock prices to cash ows and growth opportunities. Firms with more liquid stocks are expected to hold more cash, the opposite of the prediction from a standard information asymmetry...

We study how short-term informational advantages can be monetized in a high-frequency setting, when large inventories are explicitly penalized. We find that if most of the additional information is revealed regardless of the high-frequency traders' actions, then fast inventory management allows...

We find that single-name options trading increases the absolute level of information content of prices (stock price informativeness). We confirm our results through instrumental variable approach to control for potential endogeneity. We further show causality by using a difference-in-difference...

There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen-Ledoit-Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and can exhibit strict local martingale behavior, we clarify...

What causes deep recessions and slow recovery? I revisit this question and develop a macro-finance model that quantitatively matches the salient empirical features of financial crises such as a large drop in the output, a high risk premium, reduced financial intermediation, and a long duration...