Many bond portfolio managers argue that bond laddering tends to outperform other bond investment strategies because it reduces both market price risk and reinvestment risk for a bond portfolio in the presence of interest rate uncertainty. Despite the popularity of bond ladders as a strategy for...

A random variable dominates another random variable with respect to the covariance order if the covariance of any two monotone increasing functions of this variable is smaller. We characterize completely the covariance order, give strong sufficient conditions for it, present a number of examples...

We present a new theory of asset pricing and portfolio choices under asymmetric reasoning, contrast the predictions with those under asymmetric information, and present experimental evidence in favor of our theory. The Efficient Markets Hypothesis and its formal foundation, the Rational...

In this paper we examine the effect of collateral requirements on the prices of long-lived assets. We consider a Lucas-style infinite-horizon exchange economy with heterogeneous agents and collateral constraints. There are two trees in the economy which can be used as collateral for short-term...

This paper studies equilibrium in a pure exchange economy with unobservable Markov switching consumption growth regimes and regime-dependent preferences. Variations in risk attitudes have fundamental effects on the structure of equilibrium. Explicit solutions are provided for the market price of...

There are two major streams of literature on the modeling of financial bubbles: the strict local martingale framework and the Johansen-Ledoit-Sornette (JLS) financial bubble model. Based on a class of models that embeds the JLS model and can exhibit strict local martingale behavior, we clarify...

We study an economy populated by three groups of logarithmic agents: Constrained agents subject to a portfolio constraint that limits their risk-taking, unconstrained agents subject to a standard nonnegative wealth constraint, and arbitrageurs with access to uncollateralized credit. Such credit...

Most standard asset-pricing models assume that all shocks to consumption are permanent. We relax this assumption and allow also for non-permanent shocks. In our specification, the long-run mean of consumption growth is constant; consumption levels are subject to short-run deviations from their...

In this paper, we document evidence that downside betas tend to comove more than upside betas during a financial crisis, but upside betas tend to comove more than the downside betas during financial booms. We find that the asymmetry between Downside-Beta Comovement and Upside-Beta Comovement is...