I develop a new asset pricing theory that bridges two seemingly unrelated pricing effects from separate literatures: (1) the negative relationship between ex-ante return skewness and expected returns and (2) the negative relationship between dispersion in financial analysts' earnings forecasts...

This paper studies equilibrium uniqueness in multi-asset noisy rational expectations economies with asymmetric information, an extension of Grossman and Stiglitz (1980). We show the existence of a linear equilibrium, and prove its uniqueness among equilibria with any continuous price function....

This paper studies equilibrium uniqueness in standard noisy rational expectations economies with asymmetric or differential information a la Grossman and Stiglitz (1980) and Hellwig (1980). We show that the standard linear equilibrium of Grossman and Stiglitz (1980) is the unique equilibrium...

We examine the presence of adverse selection considerations in the market-making of corporate bonds. We find that institutional-sized customer trades are more informative than retail-sized ones. Dealers seem aware of the informational asymmetry between the two customer segments, as they update...

I examine the possibility of information-based trading in a multiperiod consumption setting. I develop a necessary and sufficient condition for trade to occur. Intertemporal substitution introduces a desire to correlate current consumption with future aggregate shocks. When agents have...

We derive equilibrium asset prices when fund managers deviate from benchmark indices to exploit noise-trader induced distortions but fund investors constrain these deviations. Because constraints force managers to buy assets that they underweight when these assets appreciate, overvalued assets...

We study the interaction of noisy demand and skewed asset payoffs. In our model, price as a function of quantities is convex in a neighborhood around zero if and only if skewness is positive. The combination of convexity and noise produces the idiosyncratic skewness effect--a documented negative...

In this paper we survey the theoretical and empirical literatures on market liquidity. We organize both literatures around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how...

Sudden big price changes are followed by periods of high and persistent volatility. I develop a tractable dynamic rational expectations model consistent with this observation. An infinity of agents possess dispersed information about future dividends and trade in centralized markets. Information...

We propose a novel and tractable equilibrium model to study how information asymmetry, competition among market makers, and investors' risk aversion affect asset pricing, market illiquidity and welfare. The main innovation is that market makers compete through choosing simultaneously quantities...