We model irrational investors who can impact prices to cause predictability in returns and rational investors who are wealth-constrained in their attempts to arbitrage mispricing. We show that rational investors relax wealth constraints by forming financial intermediaries which leverage the...

Originators produce higher quality assets at a private cost. These assets can either be bought by informed intermediaries or sold in a pool with low quality assets. Savings gluts diminish origination incentives because they compress the spread between the price paid for high quality assets and...