We investigate how loan terms respond to competition between lenders when borrowers have multidimensional private information. In our model, competitive lenders screen borrowers using contracts that consist of an interest rate and a collateral requirement. Compared to a monopolistic lender, a...

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 rational model to explain time-series momentum. The key ingredient is word-of-mouth communication, which we introduce in a noisy rational expectations framework. Word-of-mouth communication accelerates information revelation through prices and generates momentum. Social interactions...

We propose a joint theory of time-series momentum and reversal based on a rational-expectations model. We show that a necessary condition for momentum to arise in this framework is that information flows at an increasing rate. We focus on word-of-mouth communication as a mechanism that enforces...