Correlations of equity securities have varied substantially over time and remain a source of continuing policy debate. This paper studies stock market correlations in an equilibrium model with heterogeneous risk aversion. In the model, preference heterogeneity causes countercyclical variations...

the long run mean and/or the persistence of expected inflation.

Correlations of equity securities have varied substantially over time and remain a source of continuing policy debate. This paper studies stock market correlations in an equilibrium model with heterogeneous risk aversion. In the model, preference heterogeneity causes countercyclical variations...

We investigate conditions for endogenous incompleteness and completeness in continuous-time financial markets driven by diffusion processes with multiple consumption goods and heterogeneous agents. We show that for a class of utility functions the financial market is endogenously incomplete. A...

We analyze the performance of irrational investors, who mistake expected returns of assets in a multi-asset economy. Mistakes by probabilistically unsophisticated investors that a priori seem small lead to severe underperformance compared with rational investors, under general conditions. Our...

We investigate whether corporate finance incentives affect the extent of corporate hedging with property insurance. Using a database that contains detailed insurance information, we document a positive relation between the expected costs of distress and property insurance coverage. We also show...

We study the consumption-portfolio problem with realized capital gain taxation. The distinguishing feature of our analysis is that we impose on the model an important element of the tax code that has received little attention in the academic literature: the limited use of capital losses....

Using a database of more than 180,000 private companies from 2000 to 2009, we find that the benefits of holding more cash vary substantially with a firm’s size and the conditions it faces. Cash holdings matter most for small firms: when there are negative shocks to industry or macroeconomic...

We investigate whether corporate finance incentives aect the extent of corporate hedging with property insurance. Using a database that contains detailed insurance information, we show that rms buy property insurance to reduce the expected costs of distress. Further, we document a scale effect:...