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Entrepreneurial Incentives in Stock Market Economies

Acharya, Viral V; Bisin, Alberto - C.E.P.R. Discussion Papers - 2002

A Capital Asset Pricing Model of a stock market economy is examined under different corporate governance structures in which the objectives of managers and entrepreneurs in choosing the risk composition of their firms' returns are not aligned with those of shareholders and investors because of...

Persistent link: https://www.econbiz.de/10005124325

Dynamic Hedging in Incomplete Markets: A Simple Solution

Basak, Suleyman; Chabakauri, Georgy - C.E.P.R. Discussion Papers - 2011

Despite much work on hedging in incomplete markets, the literature still lacks tractable dynamic hedges in plausible … deviate unless she can pre-commit to follow them. We apply our results to the discrete hedging problem of derivatives when … specialized to the Black-Scholes setting. We also generalize our results to richer settings to study dynamic hedging with Poisson …

Persistent link: https://www.econbiz.de/10009024486

Information Aggregation in a DSGE Model

Hassan, Tarek; Mertens, Thomas M. - C.E.P.R. Discussion Papers - 2014

We introduce the information microstructure of a canonical noisy rational expectations model (Hellwig, 1980) into the framework of a conventional real business cycle model. Each household receives a private signal about future productivity. In equilibrium, the stock price serves to aggregate and...

Persistent link: https://www.econbiz.de/10011083546

When Everyone Runs for the Exit

Pedersen, Lasse Heje - C.E.P.R. Discussion Papers - 2009

The dangers of shouting ``fire'' in a crowded theater are well understood, but the dangers of rushing to the exit in the financial markets are more complex. Yet, the two events share several features, and I analyze why people crowd into theaters and trades, why they run, what determines the...

Persistent link: https://www.econbiz.de/10005082543

State dependent monetary policy

Lippi, Francesco; Ragni, Stefania; Trachter, Nicholas - C.E.P.R. Discussion Papers - 2014

We study the optimal anticipated monetary policy in a flexible-price economy featuring heterogenous agents and incomplete markets, which give rise to a business cycle. In this setting money policy has distributional effects that depend on the state of the cycle. We parsimoniously characterize...

Persistent link: https://www.econbiz.de/10011083446

On the optimal supply of liquidity with borrowing constraints

Lippi, Francesco; Trachter, Nicholas - C.E.P.R. Discussion Papers - 2012

We characterize policies for the supply of liquidity in an economy where agents have a precautionary savings motive due to random production opportunities and the presence of borrowing constraints. We show that a socially efficient provision of liquidity involves a trade-off between insurance...

Persistent link: https://www.econbiz.de/10011083781

Precautionary Savings or Working Longer Hours?

Pijoan-Mas, Josep - C.E.P.R. Discussion Papers - 2005

This paper quantifies the macroeconomic implications of the lack of insurance against idiosyncratic labour market risk. I show that in a model economy calibrated to observed individual level data, households make ample use of work effort as a consumption smoothing mechanism. As a consequence,...

Persistent link: https://www.econbiz.de/10005661837

Idiosyncratic Risk and Volatility Bounds, or, Can Models with Idiosyncratic Risk Solve the Equity Premium Puzzle?

Lettau, Martin - C.E.P.R. Discussion Papers - 1998

This paper evaluates models with idiosyncratic consumption risk using Hansen and Jagannathan’s (1991) volatility bounds. It is shown that idiosyncratic risk does not change the volatility bounds at all when consumers have constant relative risk aversion (CRRA) preferences and the distribution...

Persistent link: https://www.econbiz.de/10005067379

Idiosyncratic Return Volatility in the Cross-Section of Stocks

Kang, Namho; Kondor, Péter; Sadka, Ronnie - C.E.P.R. Discussion Papers - 2011

This paper uncovers the changes in the cross-sectional distribution of idiosyncratic volatility of stocks over the period 1963--2008. The contribution of the top decile to the total market idiosyncratic volatility increased, while the contribution of the bottom decile decreased. We introduce a...

Persistent link: https://www.econbiz.de/10008925711

Innovation, Competition, and Investment Timing

Koskinen, Yrjö; Mæland, Jøril - C.E.P.R. Discussion Papers - 2012

In our model multiple innovators compete against each other by submitting investment proposals to an investor. The investor chooses the least expensive proposal and when to invest in it. Innovators have to provide costly effort and they learn privately the cost of investing. Multiple efforts...

Persistent link: https://www.econbiz.de/10011084370