This paper gives a complete characterization of the equilibria in Shleifer and Vishny's (1997) model of "Limits of Arbitrage". We show that expected wealth (the arbitrageurs' objective function) is a possibly non-concave function of investment and that the relation between investment and prices...

This paper uses the structure of institutional economics to provide an explanation of the recent U.S. financial crisis. Institutional theory suggests that a county’s political, legal, social, and cultural institutions determine and characterize its economy. An institutional perspective of...

This paper tests the hypothesis that irrational market misvaluation affects firms' takeover behavior. We employ two contemporaneous proxies for market misvaluation, pre-takeover book/price ratios and pre-takeover ratios of residual income model value to price. Misvaluation of bidders and targets...

L'objectif de la Finance comportementale est de proposer une alternative théorique à la Théorie des Marchés Efficients, en introduisant des hypothèses moins restrictives quant à la rationalité des individus. La compréhension de la formation des prix sur les marchés financiers lorsqu'une...

If investors have limited attention, then accounting outcomes that saliently highlight positive aspects of a firm's performance will promote high market valuations. When cumulative accounting value added (net operating income) over time outstrips cumulative cash value added (free cash flow), it...

Some recent empirical works indicate that investor performance and market patterns are primarily information driven instead of a behavioral phenomenon. However, Grossman and Stiglitz information theory and its variations offer little guidance in identifying informed investors and in...

We analyze the trading activity in an Internet chat room with approximately 1,300 participants. Traders make posts in real time about their activities. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they earn...

We study by theoretical analysis and by direct numerical simulation the dynamics of a wide class of asynchronous stochastic systems composed of many autocatalytic degrees of freedom. We describe the generic emergence of truncated power laws in the size distribution of their individual elements....

This report analyzes recent proposals suggesting that the government buy up or guarantee bad mortgage debt in an attempt to slow the increasing number of foreclosures the nation has seen in the wake of the housing market's meltdown. The study, which focuses on the plan put forth by the Office of...

This paper compares the risk and return of investing in equity mutual funds provided by the world's two largest mutual fund families: Fidelity and Vanguard over a long horizon. We believe this will help guide investors; this study is an example of the calculations that mutual fund companies...