We investigate financial markets under model risk caused by uncertain volatilities. For this purpose we consider a financial market that features volatility uncertainty. To have a mathematical consistent framework we use the notion of G-expectation and its corresponding G-Brownian motion...

We study a simple static economy with collateralized loan contracts and an incomplete asset market. We study whether economic forces operate to keep asset price equal to fundamentals in this economy. We find that asset prices may be higher than the valuation of any agent in the economy, i.e.,...

In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, we show that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as...

We examine how different investment horizons, and consequently the number of hands through which a security passes during its life, affect prices in a laboratory market populated by overlapping generations of investors. We find that (i) price deviations are larger in markets populated only by...

The objective pursued in the present work is the identification of possible anomalies associated with daily seasonality in the returns of British companies listed on the London Stock Exchange. For this purpose, we examine the profitability of these companies for a the sample period between the...

We derive lower and upper bounds on the conditional market autocorrelation index at various investment horizons without using the precise form of the utility function. The bounds are derived in terms of option prices and can be computed at daily frequency for any given horizon. The bounds...