Asymmetric shocks are common in markets; securities'; payoffs are not normally distributed and exhibit skewness. This paper studies the portfolio holdings of heterogeneous agents with preferences over mean, variance and skewness, and derives equilibrium prices. A three funds separation theorem...

We construct a zero-net-worth uninformed "naive investor" who uses a random portfolio allocation strategy. We then compare the returns of the momentum strategist to the return distribution of naive investors. For this purpose we reward momentum profits relative to the return percentiles of the...

In dealership markets, asymmetric information feeds through to higher transaction costs as dealers adjust their bid-ask spreads to compensate for anticipated losses. In this paper, we show that the presence of asymmetric information can also provide a positive externality to those market...

I study a generalized OLG economy where asymmetrically informed agents have arbitrary investment horizons. As horizons increase, the age-adjusted risk aversion of investors fall, and the risk transfer from forced liquidators into voluntary buyers drops. Two equilibria coexist for long enough...

We propose a portfolio optimization approach to identifying private information. In our model, investors are exposed to liquidity and private information shocks and optimize their trading across stocks taking into account price impact (Kyle's Lambda). We obtain a very simple expression for a...

When a long-term investor trades a slowly changing portfolio, she is not very time sensitive to when she should place or modify her bet. Short-term information can be used to guide the investor on how to time her trades. Strategic trade modification provides exposure to short-term signals...

In this paper, we analyze the conflicts of interest of an informed agent who is responsible for divulging his private information about a company and has a reward function positively dependent on its stock price. We assume that the demand for the stock is subject to shocks that may increase...

By allowing for imperfectly informed markets and the role of private information, we offer new insights about observed deviations of portfolio concentrations in domestic relative to foreign risky assets, or "home bias", from what standard finance models predict. Our model ascribes the "bias" to...

This paper investigates prices and endogenous research decision for financial assets. In rational expectations models with public information, higher order beliefs make investors to overweight the public information relative to underlying fundamentals. The extent of this mispricing is higher if...