A key result of the Capital Asset Pricing Model (CAPM) is that the market portfolio---the portfolio of all assets in which each asset's weight is proportional to its total market capitalization---lies on the mean-variance efficient frontier, the set of portfolios having mean-variance...

The high cost of capital for firms conducting medical research and development (R&D) has been partly attributed to the government risk facing investors in medical innovation. This risk slows down medical innovation because investors must be compensated for it. We propose new and simple financial...

The high cost of capital for firms conducting medical research and development (R&D) has been partly attributed to the government risk facing investors in medical innovation. This risk slows down medical innovation because investors must be compensated for it. We propose new and simple financial...

We examine the contagion of investment ideas in a multiperiod setting in which investors are more likely to transmit their ideas to other investors after experiencing higher payoffs in one of two investment styles with different return distributions. We show that heterogeneous investment styles...

During the week of August 6, 2007, a number of quantitative long/short equity hedge funds experienced unprecedented losses. It has been hypothesized that a coordinated deleveraging of similarly constructed portfolios caused this temporary dislocation in the market. Using the simulated returns of...

This is an introduction to a five-volume collection of papers on financial econometrics to be published by Edward Elgar Publishers in 2007. Financial econometrics is one of the fastest growing branches of economics today, both in academia and in industry. The increasing sophistication of...

The traditional investment paradigm is based on several key assumptions including rational investors, stationary probability laws, and a positive linear relationship between risk and expected return with parameters that are constant over time and which can be accurately estimated. These...

If price and quantity are the fundamental building blocks of any theory of market interactions, the importance of trading volume in understanding the behavior of financial markets is clear. However, while many economic models of financial markets have been developed to explain the behavior of...

We study the relation between hedge fund equity holdings and measures of informational efficiency of stock prices derived from intraday transactions, as well as daily data. Our findings support the role of hedge funds as arbitrageurs who reduce mispricing in the market. Hedge funds invest in...

We examine the relation between changes in hedge fund stock holdings and measures of informational efficiency of equity prices derived from transactions data, and find that, on average, increased hedge fund ownership leads to significant improvements in the informational efficiency of equity...