In this study, we examine the rationale that informed traders use in choosing various financial instruments in order to speculate on the volatility of the underlying asset, here a common stock. Using a continuous-time trading model, we demonstrate that the quality of the private information...

By attaching collateral to a derivatives contract, margining supposedly reduces default risk. In this paper, we rst develop a set of testable hypotheses about the eects of margining on banks' welfare, trading volume, and default risk in the context of a stylized banking sector equilibrium model....

In this article, we study the effect of liquidity risk on the performance of various hedge fund portfolio strategies. The portfolio strategies in each hedge fund style are formed by incorporating predictability in: (i) managerial skills, (ii) fund risk loadings, and (iii) benchmark returns. As...

Seminal work in finance, economics, and psychology has documented that individuals tell the truth more often than standard economic models predict. But researchers have so far only indirectly inferred a preference for truth-telling from agents’ observed behavior. Using experiments, we explore...