Working Papers

Several theories of reputation and herding (see, e.g., Scharfstein and Stein (1990), Zwiebel (1995), and Prendergast and Stole (1996) predict that herding among agents should vary with career concerns. Our goal in this paper is to test for this…

It appears that volatility in equity markets is asymmetric: returns and conditional volatility are negatively correlated. We provide a unified framework to simultaneously investigate asymmetric volatility at the firm and the market level and to…

This paper models trading in a dealer market as a two-stage game. In the first page, risk averse dealers compete in a Bertrand fashion for liquidity-motivated public orders. The resulting inventories are private information. In the second stage,…

A number of countries have delayed the opening of their capital markets to international investment because of reservations about the impact of foreign speculators on both expected returns and market volatility. We propose a cross-sectional time-…

We examine the empirical evidence on the expectations hypothesis of the term structure of interest rates in the United States, the United Kingdom, and Germany using he Campbell-Shiller (1991) regressions and a vector-autoregressive methodology.…

This paper derives a statistical discrimination model that includes the self selection that results when employees optimally choose which jobs to apply for. We show that in such a model important theoretical results in the statistical…

We analyze intraday patterns for a set of cross-listed securities in four markets: the London Stock Exchange (LSE), the NYSE, AMEX, and Nasdaq. Differences in intraday patterns are shown to extend across both geographical and structural…

The term “market microstructure” was coined in 1976 by Mark Garman to define “moment-to-moment trading activities in asset markets” (1976, Abstract). With the stated goal of providing insight and testable implications regarding the transaction-to…

Using a framework analogous to models of the term structure of interest rates, an intertemporal rational expectations equilibrium for the term structure of lease rates is developed. While active firms lease existing units of an underlying real…

Using an option pricing approach, this paper develops a model of a firm’s optimal investment strategy when confronted with a sequence of technological innovations. There are several key features of the model. First, successive innovations of…

This paper analyzes a model of financing for start-up companies, focusing on the investment decisions that are made in later stages of financing and on the interaction between entrepreneurs, venture capitalists and other capital providers. We…

Abstract not available.

This paper studies the cross-border transaction in equity by investors in Canada, Germany, Japan, the U.K. and the U.S. We find that investors from different countries make very different decisions about the allocation of their portfolio across…

An important subfield of physics — Nuclear Physics — deals with the smallest particles of which matter is composed. Constructs developed by Kenneth Arrow (2) and Gerard Debreu (3) provide a similar foundation for financial economics. With a bit…

This paper examines financial market equilibrium in the presence of a large investor, such as a pension fund, who has access to a costly monitoring technology allowing him to affect securities’ expected payoffs. Despite the free-rider problem…

Stock market crashes are rare, highly visible, and difficult to explain — a combination that evokes serioud debate about the underlying causes of stock price movements. Keynes’ dismissal of liquid stock markets as promoting ‘a game of Snap, of…

We study the problem of optimal consumption and portfolio choice for a class of utility functions that capture the notion that consumptions at nearby dates are almost perfect substitutes. The class we consider excludes all time additive and…

The services provided by the liability side of banking are examined in an economy in which everyone is identical ex ante and banks are uninsured. Demand equity deposit claims are shown to provide all the service that can be provided by demand…

This paper develops a model in which patterns in buy and sell volume, order imbalances and expected price changes arise endogenously. The model covers cases where the market maker is competitive and where he is a monopolist. Our results provide…

This paper explores the intertemporal nature of arbitrage and its connection to Markov processes. We suppose that an economy is in one of a fixed set (symbol insert) of possible states at each date. Assuming that prices and dividends are…