Tobin (1958) has argued that in the face of potential capital losses on bonds it is reasonable to hold cash as a means to transfer wealth over time. It is shown that this assertion cannot be sustained taking into account the evolution of wealth of cash holders versus non cash holders. Cash...

We suggest a new micro-foundation of money in which markets are well-organized but consumers' preferences are stochastic. In this model, we solve for stationary equilibria and show that there is an optimum quantity of money. The rational solution of our model is compared with actual behavior in...

The purpose of General Equilibrium Foundations of Finance is to give a sound economic foundation of finance based on the general equilibrium model with incomplete markets which embodies the famous CAPM as an important special case. This goal is achieved by giving reasonable restrictions on the...

This paper presents a general reward-risk portfolio selection model and derives sufficient conditions for two-fund separation. In particular we show that many reward-risk models presented in the literature satisfy these conditions

In many countries structured investment products are popular among retail investors. We explain the demand for these products using unique field data where we let subjects freely design their "favorite" structured product. Results suggest that the supply with capital protected products...