This paper studies conditions under which the price of an asset is uniquely determined by its fundamental value (i.e., no bubbles can arise) in Lucas-type asset pricing models with unbounded utility. After discussing Gilles and LeRoy's (1992) example, we construct an example of a two-period,...

I study the stability analysis of the solutions for the dynamical system of nonlinear asset flow differential equations (AFDEs) in three versions. I show that the previous two versions are not structurally stable mathematically because there are infinitely many critical points. It is important...

We show in a simple framework that momentum trading can exist in equilibrium and momentum trading is profitable. Properties of the model fit the empirics well. First, the model captures in a parsimonious manner both short-term overreaction and long-term reversals. Second, it predicts that...

This paper studies the dynamic behavior of asset prices using a chartist - fundamentalist model with two speculative markets. To this effect, we employ a differential system with delays similar to Dibeh (2007) to describe the price dynamics and we assume that the two markets are coupled via...

The general equilibrium model with incomplete asset markets provides a unified framework for many problems in finance and macroeconomics. In its simplest version with only two time periods and a single physical commodity the model is ideally suited for the study of problems in cross sectional...

In this paper we argue that in realistically calibrated two period general equilibrium models with incomplete markets CAPM-pricing provides a good benchmark for equilibrium prices even when agents are not mean-variance optimizers and returns are not normally distributed. We numerically...

This paper analyzes the necessary and sufficient conditions for solving money-in-the-utility-function models when contemporaneous asset returns are uncertain. A unique solution to such models is shown to exist under certain measurability conditions. Stochastic Euler equations, whose existence is...

Measuring the performance of stock portfolios that include options is challenging due to options' nonlinearity in the underlying, their exposure to volatility risk, and their time decay. Our contribution to the literature is twofold: First, we provide a theoretically rigorous derivation of the...

We obtain exact necessary and sufficient conditions for existence and uniqueness of solutions of a class of homothetic recursive utility models postulated by Epstein and Zin (1989). The conditions center on a single test value with a natural economic interpretation. The test sheds light on the...

Economic agents are exposed to the uncertain outcomes of future events. By enabling the exchange of securities, financial markets allow agents to reallocate their exposures in more efficient and mutually convenient arrangements to reduce perceived risks. The complexity and changing nature of the...