We evaluate the importance of "Limits to Arbitrage" to explain profitability of momentum strategies. Specifically, when the availability of arbitrage capital is in short supply, momentum cycles last longer, and breaks in momentum cycles are shorter. We demonstrate the robustness of our findings...

We extend Kyle's (1985) model of insider trading to the case where liquidity provided by noise traders follows a general stochastic process. Even though the level of noise trading volatility is observable, in equilibrium, measured price impact is stochastic. If noise trading volatility is...

Using a comprehensive sample of trades by Schedule 13D filers, who possess valuable private information when they accumulate stocks of targeted companies, this paper studies whether several liquidity measures reveal the presence of informed trading. The evidence suggests that when Schedule 13D...

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

Parameter learning strongly amplifies the impact of macro shocks on marginal utility when the representative agent has a preference for early resolution of uncertainty. This occurs as rational belief updating generates subjective long-run consumption risks. We consider general equilibrium models...

This paper presents efficient binomial and trinomial trees for the Cox, Ingersoll, and Ross (CIR) and the constant-elasticity-of-variance (CEV) short rate models. We correct an error in the original square root transform of Nelson and Ramaswamy [1990], and modify their transform by truncating...

This paper studies the structure of stock market crashes, rallies, their jump arrival rates, and extremes. Large market moves are characterized in a pure-jump modeling framework. Based on both raw and devolatized returns, it is shown empirically that crashes are more severe in intensity than...

We use a consumption-based asset pricing model with Epstein-Zin-Weil recursive preferences to explain the cross-section of excess returns on nominal US Treasury bond portfolios. We use a novel approach to extract the model factors from a FAVAR using a large panel; of macro and financial data. We...

According to the dynamic version of the Gordon growth model, the long-run expected return on stocks, stock yield, is the sum of the dividend yield on stocks plus some weighted average of expected future growth rates in dividends. We construct a measure of stock yield based on sell-side analysts'...

Investors rebalance their portfolios as their views about expected returns and risk change. We use empirical measures of portfolio rebalancing to back out investors' views, specifically their views about the state of the economy. We show that aggregate portfolio rebalancing across equity sectors...