This paper derives in closed form the optimal dynamic portfolio policy when trading is costly and security returns are predictable by signals with dierent mean-reversion speeds. The optimal updated portfolio is a linear combination of the existing port- folio, the optimal portfolio absent...

In a model with multiple agents with different risk aversions facing margin constraints, we show how securities’ required returns are characterized both by their beta and their margins. Negative shocks to fundamentals make margin constraints bind, lowering risk free rates and raising Sharpe...