We measure misvaluation using the discounted residual income model. Confirming the findings in the literature, we show that there are significant returns on a misvaluation based long-short portfolio that buys under- and sells short overvalued shares. We define misvaluation spread as the...

We present a structural model of the stock market where a subset of the investors is infrequently present at the market. In our model the stocks' return reversal pattern is exponential and the amount of return reversal, the speed of return reversal and stock's transitory volatility are all...

In this paper, we study a pair trading strategy that utilizes short-term return reversals in the stock market. Using U.S. data, we show that returns to our pair trading strategy exceed reasonable estimates for transaction costs. The strategy also generates positive alpha when controlling for the...

We present evidence that some mutual funds systematically act as contrarian traders, and earn returns in the stock market by providing liquidity to investors, while others systematically demand liquidity and suffer costs of immediacy. On average, the mutual funds' costs of immediacy exceed their...

We examine the relationships among corporate governance, industry concentration and financial structure that emerge endogenously in an economy. We consider entrepreneurs whose ability to raise capital is limited by the presence of agency costs in both the equity and debt markets. We argue that...

In this paper, we study a two-country general equilibrium model with partially segmented financial markets, where hedge funds emerge endogenously. Empirically, we show that the hedge fund investment strategy predicted by our model, so called ldquo;risk-adjusted carry traderdquo; strategy,...

We measure funding constraints in international currency markets by deviations in the covered interest rate parity. Our measure of funding risk is the standard deviation of the magnitude of the funding constraints. This funding risk measure appears to be driven by conditions in the financial...

I first show that taking moving averages of the term spread, the dividend yield, and the Shiller’s CAPE, significantly increases their ability to predict one month and 12-month forward equity market excess returns, and the state of the business cycle. Dividend yield, CAPE and term spread are...

In this paper we develop a model for the choice of the equity issuing method, where the major determinants of the choice are 1) over- and undervaluation of shares and 2) the price impact from selling shares in the market. In our model there is a price impact, i.e., a temporary decline in price,...