This paper investigates the importance of financial institutions, particularly universal banks, in the pricing of risk in securities markets. Recent research on modern economies, finds that three factors explain the cross-section of average stock returns: (i) a stock's sensitivity to market-wide...

Many tests of asset pricing models address only the pricing predictions — but these pricing predictions rest on portfolio choice predictions which seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices, based on unobserved heterogeneity. This approach...

We analyse the optimal Initial Public Offering (IPO) mechanism in a multidimensional adverse selection setting where institutional investors have private information about the market valuation of the shares, the intermediary has private information about the demand, and the institutional...

Many tests of asset-pricing models address only the pricing predictions, but these pricing predictions rest on portfolio choice predictions that seem obviously wrong. This paper suggests a new approach to asset pricing and portfolio choices based on unobserved heterogeneity. This approach yields...

Procedures are presented that allow the empiricist to estimate and test asset pricing models on limited-liability securities without the assumption that thehistorical payoff distribution provides a consistent estimate of the market's priorbeliefs. The procedures effectively filter return data...

Speculators buy an asset hoping to sell it later to investors with higher private valuations. If agents are uncertain about the distribution of private valuations and about the beliefs of others about this distribution, a beauty contest with an infinite hierarchy of beliefs arises. Under...