News--or foresight--about future economic fundamentals can create rational expectations equilibria with non-fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react. Using tax policies as a leading example...

This paper develops a model to analyze information aggregation in commodity markets. Through centralized trading, commodity prices aggregate dispersed information about the strength of the global economy among goods producers whose production has complementarity, and serve as price signals to...

Does country transparency affect international portfolio investment? We examine this and related questions using some new measures of transparency and a unique micro dataset on international portfolio holdings. We distinguish between government and corporate transparency. There is clear evidence...

A number of theories have been proposed to explain the medium-term momentum in stock returns identified by Jegadeesh and Titman (1993). We test one such theory--based on the gradual-information-diffusion model of Hong and Stein (1997)--and establish three key results. First, once one moves past...

quot;Limits of Arbitragequot; theories hypothesize that the marginal investor in a particular asset market is a specialized arbitrageur rather than a diversified representative investor. We examine the mortgage-backed securities (MBS) market in this light. We show that the risk of homeowner...

A central result in the economic theory of liability is that, if an injurer's liability equals the victim's loss, then either the rule of strict liability or the rule of negligence can induce the injurer to behave properly. However, for this result to hold, the injurer must know the victim's...

We investigate the role of information frictions in the US labor market using a new nationally representative panel dataset on individuals' labor market expectations and realizations. We find that expectations about future job offers are, on average, highly predictive of actual outcomes. Despite...