In this paper, we intend to explain an empirical finding that distressed stocks delivered anomalously low returns (Campbell et. al. (2008)). We show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on idiosyncratic coskewness betas,...

We present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each. Investment in that market with the greatest amount of capital earns the lowest risk premium. Intermediaries optimally trade off the costs of...