We provide an equilibrium asset pricing formula under moral hazard, which is defined as a firm's change of measure that is incontractible, on the assumption of a power utility function and an endogenous riskless rate. Moral hazard distorts asset prices by (1) moving the market price of diffusive...

This study seeks to explain the emergence of fat-tailed distributions of trading volumes and asset returns in financial markets. We use a rational expectations form of the herding model. In the model, traders infer other traders' private signals regarding the value of an asset by observing their...