We analyze banks’ pooling of corporate loans and propose Pareto-improving sharing rules that depend only on the relative sizes of the loans. Implementation of these sharing rules do not require any precise knowledge of default probabilities or default correlations.

This paper analyzes the term structure of interest rates in an exchange-only Lucas (Econometrica 46:1429–1445, <CitationRef CitationID="CR32">1978</CitationRef>) economy where consumers learn about a stochastic growth rate through observations of the endowment process and an external public signal. We allow for deluded consumers, who...</citationref>

We analyze how a benevolent, privately informed government agency would optimally release information about the economy׳s growth rate when the agents hold heterogeneous beliefs. We model two types of agent: “conforming” and “dissenting.” The former has a prior that is identical to that...

We explore the relation between institutional quality, trust and stock-market participation. In our theoretical model, agents update their beliefs in a Bayesian manner based on observations on frauds and choose whether to invest in the stock market. The corresponding empirical model shows that...

We show in a theoretical model that the expected excess return on any asset depends on its covariance not only with the market portfolio, but also with changes in the representative agent's estimate. We test our model using GMM and compare it to the CAPM. The results suggest that adding an...

This paper analyzes the expected life-time utility and the hedging demands in a Lucas (1978) economy, in which the dividend drift term is unknown and mean-reverting. An expression for the individual investor’s expected life-time utility in equilibrium is derived, and his hedging demand is...

This paper investigates the extent to which differences in information costs can explain the equity home bias puzzle. In a model where information costs are higher for the Foreign asset than for the Home asset, I show that, if cost functions are convex and the assets have identical return...

This paper studies the pricing of IPOs in a tractable model in which an investment bank faces some investors with superior information. We show how this can lead to underpricing and we make a number of empirical predictions.

We show that a simple equilibrium model with uncertain growth is able to simultaneously generate patterns in implied volatility and risk aversion that are similar to the ones observed in the data.