Financial contagion is described as a wealth effect in a continuous-time model with two risky assets and three types of traders. Noise traders trade randomly in one market. Long-term investors provide liquidity using a linear rule based on fundamentals. Convergence traders with logarithmic...

We model the relationship between asset float (tradeable shares) and speculative bubbles. Investors with heterogeneous beliefs and short-sales constraints trade a stock with limited float because of insider lockups. A bubble arises as price overweighs optimists' beliefs and investors anticipate...

We investigate whether prospect theory preferences can predict a disposition effect. We consider two implementations of prospect theory: in one case, preferences are defined over "annual" gains and losses; in the other, they are defined over "realized" gains and losses. Surprisingly, the annual...