Two problems in estimating the expected real return on the market are dealt with: (1) the absence of reliable real data, (2) the absence of observations of market (i.e., economy-wide) returns. By combining financial and monetary theory, a general equilibrium model is constructed, both in a...

This paper investigates the behavior of the term structure of interest rates over the business cycle. In contrast to the simple change in aggregate economic activity used in previous research, we use a more appropiate measure of the business cycle: the deviation of aggregate economic activity...

This paper is concerned with the asset pricing implications of the substantial proportion of equity portfolios that are managed on an agency basis. Portfolio managers who act as agents are assumed to be concerned with the mean and variance of their return measured relative to a benchmark...

Between January 1980 and August 2000 American stock prices as measured by the S&P500 index rose by 1239%; over the same period the dividends on the shares underlying the index rose by only 188%, while the earnings rose by 254%. Between August 2000 and February 2003 the price index fell by 44%...

We investigate general models of wealth accumulation induced by financial investment. These models assume only that returns are stochastic and that a minimal level of wealth is required in order to participate in financial investments. When homogenous investment talents are assumed by the...

This paper follows the process of financial distress from its onset to its resolution for a sample of 95 firms. Only about one-third of the firms survive as independent companies. A firm's short-run and long-run survival probability is positively affected by its operating performance, but its...

In this paper, we propose a model of mechanism choice in the disposition of real estate assets. Specifically, we consider two alernatives: a search or negotiated sale and auction. Within the search framework, we derive an equilibrium whereby buyers incur costly search and sellers must incur...

During the 1990s, the richest quintile of a country had an average income per capita approximately ten times that of the poorest quintile. We find that the poor of a country are better off relatively, and absolutely, when the country ranks higher in average income, union participation, taxation,...

It is widely believed that it is optimal to call a bond as soon as its market price equals its call price. We show that this policy is generally not optimal when there is more than one bond issue outstanding because minimizing the value of a particular bond issue is not the same as maximizing...

This paper studies the relation between order imbalances and daily returns of individual stocks. Our tests are motivated by a model which explicitly considers how market makers dynamically accommodate autocorrelated imbalances emanating from large traders who optimally choose to split their...