Prominent financial stock pricing models are built on assumption that asset returns follow a normal (Gaussian) distribution. However, many authors argue that in the practice stock returns are often characterized by skewness and kurtosis, so we test the existence of the Gaussian distribution of...

We study how monetary policy affects local market competition in a union of countries experiencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines)....

This interdisciplinary paper explains how mathematical techniques of stochastic optimal control can be applied to the recent subprime mortgage crisis. Why did the financial markets fail to anticipate the recent debt crisis, despite the large literature in mathematical finance concerning optimal...

We create proxies for constrained supply of lendable shares by combining unique data on loan fees, stock lending activity, and failures to deliver to examine how contrarian short-sale strategies are affected by constraints. Constraints affect roughly one-third of the cross- section of stocks and...

We derive equilibrium pricing implications from an intertemporal capital asset pricing model where the tightness of financial intermediaries’ funding constraints enters the pricing kernel. We test the resulting factor model in the cross-section of stock returns. Our empirical results show that...

We develop a discrete-time affine stochastic volatility model with time-varying conditional skewness (SVS). Importantly, we disentangle the dynamics of conditional volatility and conditional skewness in a coherent way. Our approach allows current asset returns to be asymmetric conditional on...

In this paper we propose exact likelihood-based mean-variance efficiency tests of the market portfolio in the context of Capital Asset Pricing Model (CAPM), allowing for a wide class of error distributions which include normality as a special case. These tests are developed in the framework of...

Dividend discount model (DDM) is the simplest model for valuing equities in finance. Many analysts belived that DDM is outmoded, but much of the intuition that drives Discounted Cash Flow (DCF) valuation is embedded in the DDM model. There are also specific companies stocks where the DDM model...

This paper surveys work on dynamic heterogeneous agent models (HAMs) in economics and finance. Emphasis is given to simple models that, at least to some extent, are tractable by analytic methods in combination with computational tools. Most of these models are behavioral models with boundedly...