Our basic premise is that fund managers performance is related to superior information about an asset payoff. We investigate the relationship between managerial skills and trading behavior within a two-period rational expectation equilibrium (REE) model where agents trade on private information...

We define two measures: the Model Performance Ratio (MPR), which ranks asset pricing models based on their ability to price random portfolios, and the Rate of Market Efficiency (RME), which measures market efficiency assuming the best pricing model (largest MPR). We find that: (i) market...

We analyze the interaction between growth and financial development in a model of product innovation. Innovation is risky and can be monitored only imperfectly and at a cost. Financial intermediaries emerge endogenously to avoid the duplication of monitoring activities and negotiate contracts...