This paper aims to shed light on some of the major allocative consequences of financial market bubbles. In March 1997, the Neuer Markt in Germany opened. Six years later, in June 2003, it closed forever. In the interim period lay the spectacular rise and fall of the first and most important...

We develop a dynamic principal-agent model to show how imperfect public information and asymmetric beliefs about payoff-relevant parameters, agency conflicts, and the agent's implicit incentives to influence the principal's posterior beliefs through his unobservable actions interact to affect...

We develop a dynamic principal-agent model to show how imperfect public information and asymmetric beliefs about payoff-relevant parameters, agency conflicts, and the agent's implicit incentives to influence the principal's posterior beliefs through his unobservable actions interact to affect...

Revisions of consensus forecasts of macroeconomic variables positively predict announcement day forecast errors, whereas stock market returns on forecast revision days negatively predict announcement day returns. A dynamic noisy rational expectations model with periodic macroeconomic...

We develop a model of dealer-intermediated over-the-counter (OTC) markets in which customers choose their relationship dealers and dealers choose their levels of expertise, thereby determining the market structure and price informativeness jointly. We find that, in general, multiple equilibria...

Sudden big price changes are followed by periods of high and persistent volatility. I develop a tractable dynamic rational expectations model consistent with this observation. An infinity of agents possess dispersed information about future dividends and trade in centralized markets. Information...

We consider an exchange economy with two heterogeneous stocks and twogroups of investors. Dividends follow diusion processes, with a constant expectedgrowth rate for one stock and a stochastic drift for the other. 'Rationalinvestors' can either observe this stochastic drift without error or...

We find that price and earnings momentum are pervasive features of international equitymarkets when controlling for data snooping biases. For European countries, we find that pricemomentum is subsumed by earnings momentum on an aggregate level. However, this rationaledoes not apply to each and...

We find that stocks exhibiting high dispersion in analysts’ earnings forecasts do not onlyunderperform in the U.S. but also in many European countries. Testing for the dispersioneffect in many countries calls for adequate multiple testing controls and we show that theU.S. dispersion effect...

We use learning in an equilibrium model to explain the puzzling predictive power of the volatility risk premium (VRP) for option returns. In the model, a representative agent follows a rational Bayesian learning process in an economy under incomplete information with the objective of pricing...