The extent to which a set of asset prices tends to diverge over time is of considerable interest to academics and practitioners. But there is no standard definition of dispersion. A definition is offered here which derives from four simple axioms, and its properties are discussed. Viewed in the...

Higher moments of long-horizon returns are important for asset pricing but are hard to measure accurately using standard techniques. We provide theory showing that short-horizon (e.g. daily) returns can be used to construct precise estimates of long-horizon (e.g. annual) moments without making...

We develop an asset pricing model with stochastic transaction costs and investors with heterogeneous horizons. Depending on their horizon, investors hold different sets of assets in equilibrium. This generates segmentation and spillover effects for expected returns, where the liquidity (risk)...

We develop an asset pricing model with stochastic transaction costs and investors with heterogeneous horizons. Depending on their horizon, investors hold different sets of assets in equilibrium. This generates segmentation and spillover effects for expected returns, where the liquidity (risk)...

We present an improved method for inference in linear regressions with overlapping observations. By aggregating the matrix of explanatory variables in a simple way, our method transforms the original regression into an equivalent representation in which the dependent variables are...

In the presence of proportional transactions costs, the tightest bounds which can be imposed on the price of a call option when the asset price follows a geometric diffusion process are those imposed by static portfolio strategies. The price of a call is bounded above by the value of the asset...

The risk management of derivative portfolios is vulnerable to model error. This paper explores risk management strategies based on no-arbitrage bounds, which are independent of any model. In particular, we determine the bounds on the price of a general barrier option given the price of a set of...

The paper explores the bounds which can be placed on the price of exotic options while making minimal assumptions about the price process. In particular, we identify the bounds on the price of a general barrier option given the price of a set of European call options. We show the hedging...

The slope of the implied volatility smile reflects the correlation between volatility shocks and returns. By defining the slope as the difference between two implied variances, the relationship between the slope, and the correlation between volatility and returns can be derived formally in a way...

In this paper we address the question whether dealers on the London Stock Exchange act strategically. While a large part of the microstructure literature assumes that dealers are constrained to make zero expected profits on each trade we argue that, if dealers can learn valuable information from...