We study the impact of diverse beliefs on conduct of monetary policy. Individual belief is modeled by a state variable that defines an individual's perceived laws of motion. We use a New Keynesian Model that is solved with a quadratic approximation hence individual decisions are quadratic...

Specified Purpose Acquisition Companies (SPACs) are a special type of public companies currently available to investors in financial markets. As an investment vehicle, modern SPACs are traced back to 18-th century England where blank checks were first mentioned as blind pools during the infamous...

Abstract: Copy trading allows traders in social networks to receive information on the success of other agents in financial markets and to directly copy their trades. Internet platforms like eToro, ZuluTrade, and Tradeo have attracted millions of users in recent years. The present paper studies...

Exchanges nowadays routinely operate multiple, almost identically structured limit order markets for the same security. We study the effects of such fragmentation on market performance using a dynamic model where agents trade strategically across two identically-organized limit order books. We...

Through the lens of market participants' objective to minimize counterparty risk, we provide an explanation for the reluctance to clear derivative trades in the absence of a central clearing obligation. We develop a comprehensive understanding of the benefits and potential pitfalls with respect...

This study examines the impacts of investor sentiment and liquidity on the idiosyncratic volatility (IVOL) anomaly returns in Vietnam before and during the COVID-19. We construct an internet search-based measure of sentiment (FEARS) from the Google Trends Search Volume Index of Vietnam’s...

Hedging being a predominant financial concern, is considered as a robust method of managing investment risks. Literature evinces that the covered call strategy provides nominal returns alongside effective hedging. However, studies have not compared the hedging effectiveness of covered call,...

The Bank of Japan (BoJ) conducts an unconventional monetary policy that includes exchange-traded fund (ETF) purchases, which can be expected to affect aggregate equity indices. As equity ETF purchases represent a unique and exceptional monetary policy framework, there are few studies on how such...

We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors. The price of a CDS option can be uniformly approximated by...

We introduce a novel stochastic volatility model where the squared volatility of the asset return follows a Jacobi process. It contains the Heston model as a limit case. We show that the joint density of any finite sequence of log returns admits a Gram-Charlier A expansion with closed-form...