The performance of a given portfolio policy can in principle be evaluated by comparing its expected utility with that of the optimal policy. Unfortunately, the optimal policy is usually not computable in which case a direct comparison is impossible. In this paper we solve this problem by using...

We examine how liquidity and asset prices are affected by the following market imperfections: asymmetric information, participation costs, transaction costs, leverage constraints, non-competitive behavior and search. Our model has three periods: agents are identical in the first, become...

Milton Friedman argued that irrational traders will consistently lose money, will not survive, and, therefore, cannot influence long-run asset prices. Since his work, survival and price impact have been assumed to be the same. In this paper, we demonstrate that survival and price impact are two...

Technical analysis, also known as 'charting,' has been a part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis. One of the main obstacles is the highly...

We examine the implications of portfolio theory for the cross-sectional behavior of equity trading volume. Two-fund separation theorems suggest a natural definition for trading activity: share turnover. If two-fund separation holds, share turnover must be identical for all securities. If (K +...

Technical analysis, also known as "charting", has been a part of financial practice for many decades, yet little academic research has been devoted to a systematic evaluation of this discipline. One of the main obstacles is the highly subjective nature of technical analysis---the presence of...

A model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives. The author examines the link between the nature of heterogeneity among...

This paper investigates the relationship between aggregate stock market trading volume and the serial correlation of daily stock returns. For both stock indexes and individual large stocks, the first-order daily return autocorrelation tends to decline with volume. The paper explains this...

We examine the dynamic relation between return and volume of individual stocks. Using a simple model in which investors trade to share risk or speculate on private information, we show that returns generated by risk-sharing trades tend to reverse themselves, while returns generated by...