We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with a competitive market maker and noise traders, and observes privately the expected growth rate of asset dividends. In the absence of the insider, this information would be reflected in...

The theory of labor contract with worker’s chosen effort level mainly rests upon the principal-agent paradigm. In many labor markets however, the principal is not as free as assumed in the standard theory, but is submitted to some binding institutional constraints. It is requested in...

This paper studies a dynamic equilibrium with small fixed transactions costs. We consider an overlapping generations economy with two assets of different liquidity. Trading the liquid asset does not involve transactions costs while trading the illiquid asset requires a fixed transaction fee....

We examine empirically how the maturity structure of government debt affects bond yields and excess returns. Our analysis is based on a theoretical model of preferred habitat in which clienteles with strong preferences for specific maturities trade with arbitrageurs. Consistent with the model,...

We model the term structure of interest rates as resulting from the interaction between investor clienteles with preferences for specific maturities and risk-averse arbitrageurs. Because arbitrageurs are risk averse, shocks to clienteles' demand for bonds affect the term structure---and...

We survey theoretical developments in the literature on the limits of arbitrage. This literature investigates how costs faced by arbitrageurs can prevent them from eliminating mispricings and providing liquidity to other investors. Research in this area is currently evolving into a broader...

We develop a dynamic model of liquidity provision, in which hedgers can trade multiple risky assets with arbitrageurs. We compute the equilibrium in closed form when arbitrageurs' utility over consumption is logarithmic or risk-neutral with a non-negativity constraint. Liquidity is increasing in...

In this paper we survey the theoretical and empirical literature 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 illiquidity...

We analyze how asymmetric information and imperfect competition a®ect liquidity and asset prices. Our model has three periods: agents are identical in the ¯rst, become heterogeneous and trade in the second, and consume asset payo®s in the third. We show that asymmetric information in the...