In a market with a safe rate and a risky asset that pays a continuous dividend stream depending on a latent state of the economy, several agents make consumption and investment decisions based on public information — prices and dividends — and private signals. We obtain the equilibrium in...

When trading incurs proportional costs, leverage can scale an asset's return only up to a maximum multiple, which is sensitive to its volatility and liquidity. In a model with one safe and one risky asset, with constant investment opportunities and proportional costs, we find strategies that...

Leveraged and inverse exchange-traded funds seek daily returns equal to fixed multiples of indexes' returns. Trading costs implied by frequent adjustments of funds' portfolios create a tension between tracking error, reflecting short-term correlation with the index, and excess return, the...

This paper examines the performance from 1996 to 2020 of mean-variance efficient portfolios of monthly options with all available strikes on each of the S&P 500, Nasdaq 100, and Dow Jones indexes, using a constrained optimization approach that incorporates position limits, transaction costs, and...

Investing on behalf of a firm, a trader can feign personal skill by committing fraud that with high probability remains undetected and generates small gains, but that with low probability bankrupts the firm, offsetting ostensible gains. Honesty requires enough skin in the game: if two traders...