We study the relationship between the risk preferences of individuals and the risk preferences of the aggregate economy. To emphasize the vast differences that can occur between individual and market preferences brought about through aggregation, we assume an economy consisting entirely of risk...

This paper issues a warning that compounding daily returns of the Center for Research in Security Prices (CRSP) equal-weighted index can lead to surprisingly large biases. The differences between the monthly returns compounded from the daily tapes and the monthly CRSP equal-weighted indices is...

This paper establishes liquidity linkage between stock and Treasury bond markets. There is a lead-lag relationship between illiquidity of the two markets and bidirectional Granger causality. The effect of stock illiquidity on bond illiquidity is consistent with flight-to-quality or...

Primes and scores split the cash flows of a share of stock into dividend and capital gain components, respectively. An analysis of the transaction prices reveals that the sum of prime and score prices exceeds the price of the underlying stock. This paper develops a tax-clientele explanation of...

We use traded options on growth and value indices to test for clientele differences in risk preferences. Value investors appear to have exhibited a higher average level of risk aversion than growth investors for two different time periods in the late 1990's and early 2000's. We construct a model...

The classical warrant pricing formula requires knowledge of the firm value and of the firm-value process variance. When warrants are outstanding, the firm value itself is a function of the warrant price. Firm value and firm-value variance are then unobservable variables. I develop an algorithm...

We use a mean-variance approach to address the classic puzzle of British capital export in the 19th century. Our analysis shows that foreign securities listed in London offered significant diversification benefits to British investors. In simple terms, international diversification reduced risk....

In this paper we study priming of identity within the context of inherent vs. contextual financial decision making. We use a sample of individual trading accounts in equity-style funds taken from one fund family to test the hypothesis that trading styles are inherent vs. contextual. Our sample...