Performance fees for portfolio managers are designed to align the managers' goals withthose of the investors and to motivate managers to aquire "superior" information and tomake better investment decisions. A part of the literature analyzes performance fees on thebasis of market valuation. In...

In this paper, we examine formally Keynes' idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs. In a dynamic noisy rational expectations model, higher order expectations add an additional term, which we call the...

We present a trading game with one insider, many outsiders, liquidity traders and a competitive market maker trading an asset with two value components, a private and a shared one, in a market operating as in Kyle (1985). The insider knows both value components and outsiders only know the shared...

A restricted-perceptions equilibrium exists in which risk-averse agents believe stock prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate risk, bubbles and crashes arise. These effects are stronger when agents allow for ARCH in excess returns.

The cost of equity capital is traditionally considered as an increasing function of the estimation risk – the risk of error regarding the distribution of a firm’s future cash flows (FCF). Under international GAAPs, IAS 36 “Impairment of assets” -based information disclosure conveys...

Credit rating agencies have an incentive to maintain a public reputation for credibility among investors but also have an incentive to develop a second, private reputation for leniency among issuers. We show that in markets with few issuers, such as markets for structured assets, these...

Published in the <I>Journal of Reviews on Global Economics</I> (2013). Volume 2, pages 307-329.<P> Economists and financial analysts have begun to recognise the importance of the actions of other agents in the decision-making process. Herding is the deliberate mimicking of the decisions of other agents....</p></i>

This research considers the strategies on the initial public offering of company equity at the stock exchanges in the imperfect highly volatile global capital markets with the nonlinearities. We provide the IPO definition and compare the initial listing requirements on the various markets. We...

This paper demonstrates that an asset pricing model with least-squares learning can lead to bubbles and crashes as endogenous responses to the fundamentals driving asset prices. When agents are risk-averse they need to make forecasts of the conditional variance of a stock¡¯s return....