We propose a new theory of suboptimal risk-taking based on contractual externalities. We examine an industry with a continuum of firms. Each firm's manager exerts costly hidden effort. The productivity of effort is subject to systematic shocks. Firms' stock prices reflect their performance...

Using new data on returns and risk factors the paper considers the stock performance on the Japanese market, which is the second largest in the world and operates under unique macroeconomic conditions. We find that the CAPM model is not an adequate approach for the Japanese market. The Carhart...

The recent financial crisis has demonstrated in an impressive way that boom/bust cycles can have devastating effects on the real economy. This paper aims at contributing to the literature on early warning indicator exercises for asset price development. Using a sample of 17 industrialised OECD...

We examine time-varying stock market comovements in Central Europe employing the asymmetric dynamic conditional correlation multivariate GARCH model. Using daily data from 2001 to 2011, we find that the correlations among stock markets in Central Europe and between Central Europe vis-a-vis the...

Liechtenstein's economy has been heavily affected by the international economic downturn during the financial crisis. Additionally to the deep world recession, Liechtenstein's financial sector was challenged by the Zumwinkel-Affair (data of thousands of tax evaders were sold to several...

We develop a model of rational bubbles based on the assumptions of unknown market liquidity and limited liability of traders. In a bubble, the price of an asset rises dynamically above its steady-state value, justified by rational expectations about future price developments. The larger the...

We develop a model of rational bubbles based on the assumptions of unknown market liquidity and limited liability of traders. In a bubble, the price of an asset rises dynamically above its steady-state value, justified by rational expectations about future price developments. The larger the...

The goal of this paper is to present an original and simple analysis aimed to understand why investing in capital markets can be very dangerous for "naive investors". Stock markets display often exploding volatility. They are characterized by instability and subject to external shocks. If...

We propose a new theory of suboptimal risk-taking based on contractual externalities. We examine an industry with a continuum of firms. Each firm's manager exerts costly hidden effort. The productivity of effort is subject to systematic shocks. Firms' stock prices reflect their performance...

We evaluate the informational content of ex post and ex ante predictors of periods of excess stock (market) valuation. For a cross section comprising 10 OECD economies and a time span of at most 40 years alternative binary chronologies of price bubble periods are determined. Using these...