This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The Small Fund Industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The Large Fund Industry model derives...

In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as “anomalies” the theory of rational finance cannot explain: (i) Predictability of asset returns; (ii) The Equity Premium; (iii) The Volatility Puzzle. We offer resolutions of...

Motivated by recent US evidence, we evaluate the predictive power of changes in the weight of large firms in the aggregate stock market ("Goliath vs David" (GVD)) for Swiss stock market returns and bond market returns. Previous research suggests that the asset return dynamics in the US and...