We perform an experimental study of complexity to assess its effect on trading behavior, price volatility, liquidity, and trade efficiency. Subjects were asked to deduce the value of a particular asset from information they were given about the composition and price of several portfolios....

We provide new empirical evidence suggesting that the marginal investor in mutual funds behaves differently across market conditions. If the marginal investor allocates capital across mutual funds rationally, then the relative performance of funds should be unpredictable. We find however that...

A basic tenet of financial economics is that asset prices change in response to unexpected fundamental information. Since Roll's (1988) provocative presidential address that showed little relation between stock prices and news, however, the finance literature has had limited success reversing...

We design an experiment to understand how social preferences affect investment decisions through stock allocations and probability assessments. The major preference channel is asymmetric in social outcomes – although negative and positive responsible investment (RI) externalities have the same...

We provide causal evidence that discount rate changes by the Federal Reserve affected economic output in the 1920s. Our identification strategy exploits county-level variation in access to the Fed's discount window, and we implement this strategy with hand-collected data on banking and...

Creative destruction not only involves bringing new technology to market, it imposes higher risk on the future of existing assets. We characterize the asset pricing implications of creative destruction when investors compete for market share. Compared to the social optimum, the quest for...

Investor sophistication has lagged behind the growing complexity of retail financial markets. To explore this, we develop a dynamic model to study the interaction between obfuscation and investor sophistication. Taking into account different learning mechanisms within the investor population, we...

This paper uses a quasi natural experiment to explore how financial education changes savings, investment, and consumer behavior. We use data from a Junior Achievement Finance Park to measure the effect of a financial literacy program on students who are assigned fictitious life situations and...

Competition for positive attention in financial markets frequently resembles a tournament, where superior relative performance and greater visibility are rewarded with convex payoffs. We present a rational expectations model in which firms compete for such positive attention and show that higher...

How should an investor unwind a portfolio in the face of recurring and uncertain liquidity needs? We propose a model of portfolio liquidation in two periods to investigate this question, initially posed by Myron Scholes following the fall of Long Term Capital Management. We show that when the...