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A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets

Hong, Harrison G. - 2008

We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are notquot; sufficient to predict future short-term rates movements, as would be the case if the centralquot; tendency was...

Persistent link: https://www.econbiz.de/10012774922

Optimal Inattention to the Stock Market with Information Costs and Transactions Costs

Abel, Andrew B. - 2010

Recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values. When consumers observe the value of their wealth, they decide whether to transfer funds between a transactions account from which consumption must be financed and an...

Persistent link: https://www.econbiz.de/10013152620

A Model of Momentum

Liu, Laura Xiaolei - 2011

Optimal investment of firms implies that expected stock returns are tied with the expected marginal benefit of investment divided by the marginal cost of investment. Winners have higher expected growth and expected marginal productivity (two major components of the marginal benefit of...

Persistent link: https://www.econbiz.de/10013130782

What Drives the Disposition Effect? An Analysis of a Long-Standing Preference-Based Explanation

Barberis, Nicholas - 2006

explanation for this puzzle is based on prospect theory. Despite its prominence, this explanation has received little formal … scrutiny. We take up this task, and analyze the trading behavior of investors with prospect theory preferences. We find that …, at least for the simplest implementation of prospect theory, the link between these preferences and the disposition …

Persistent link: https://www.econbiz.de/10012779644

Using Neural Data to Test a Theory of Investor Behavior : An Application to Realization Utility

Frydman, Cary - 2015

utility" theory of investor behavior, which posits that people derive utility directly from the act of realizing gains and …

Persistent link: https://www.econbiz.de/10013036251

Managing Markets for Toxic Assets

House, Christopher L. - 2010

We present a model in which banks trade toxic assets to raise funds for investment. The toxic assets generate an adverse selection problem and, as a consequence, the interbank asset market provides insufficient liquidity to finance investment. While the best investments are fully funded,...

Persistent link: https://www.econbiz.de/10013141357

Adverse Selection, Reputation and Sudden Collapses in Secondary Loan Markets

Chari, Varadarajan V. - 2010

Banks and financial intermediaries that originate loans often sell some of these loans or securitize them in secondary loan markets and hold on to others. New issuances in such secondary markets collapse abruptly on occasion, typically when collateral values used to secure the underlying loans...

Persistent link: https://www.econbiz.de/10013142283

Diagnosing Consumer Confusion and Sub-Optimal Shopping Effort : Theory and Mortgage-Market Evidence

Woodward, Susan E. - 2010

Mortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers' lack of knowledge and experience. We study the compensation that borrowers pay to mortgage brokers for assistance from application to closing. Two findings support the...

Persistent link: https://www.econbiz.de/10013143180

The Real Effects of Financial Markets

Bond, Philip - 2011

A large amount of activity in the financial sector occurs in secondary financial markets, where securities are traded among investors without capital flowing to firms. The stock market is the archetypal example, which in most developed economies captures a lot of attention and resources. Is the...

Persistent link: https://www.econbiz.de/10013117118

The Lucas Orchard

Martin, Ian - 2011

This paper investigates the behavior of asset prices in an endowment economy in which a representative agent with power utility consumes the dividends of multiple assets. The assets are Lucas trees; a collection of Lucas trees is a Lucas orchard. The model generates return correlations that vary...

Persistent link: https://www.econbiz.de/10013118845