This paper analyzes the expected life-time utility and the hedging demands in an exchange only, representative agent general equilibrium under incomplete information. We derive an expression for the investor’s expected life-time utility, and analyze his hedging demands for intertemporal...

Mandatory contributions to defined benefit pension plans provide a unique identification strategy to estimate the market's assessment of the value of internal resources controlling for investment opportunities. The drop in prices following these cash outflows is magnified for firms that appear a...

Historic analysis of the inflation hedging properties of stocks has produced anomalous results, with stocks often appearing to offer a perverse hedge against inflation. This has been attributed to the impact of real and monetary shocks to the economy, which influence both inflation and asset...

We derive a closed-form asymptotic expansion formula for option implied volatility under a two-factor jump-diffusion stochastic volatility model when time-to-maturity is small. Based on numerical experiments we describe the range of time-to-maturity and moneyness for which the approximation is...

We complement the conditional CAPM by introducing unobservable long-run changes in risk factor loadings. In this environment, investors rationally `learn' the long-level of factor loadings from the observation of realized returns. As a direct consequence of this assumption, conditional betas are...

This article shows that, as long as agents are required to maintain positive wealth, the presence of portfolio constraints may give rise to asset pricing bubbles in equilibrium even if there are unconstrained agents in the economy who can benefit from the induced arbitrage opportunity....

If asset returns are predictable, then rational expectations and the arithmetic of budget constraints together imply that these predictable changes in returns should affect current consumption. This paper presents a new framework linking consumption, income, and observable assets to expectations...

This paper presents a new alternative diffusion model for asset price movements. In contrast to the popular approach of Brownian Motion it proposes Deterministic Diffusion for the modelling of stock price movements. These diffusion processes are a new area of physical research and can be created...

Since Flood and Garber (1980), the debate surrounding speculative bubbles has never subsided. A key obstacle to resolve this issue is the identification problem. A bubble is usually inferred from some assumed fundamental determinants of a price. These assumptions could be over-simplified....