Trading on private information creates inefficiencies because there is less than optimal risk sharing. This occurs because the response of marketmakers to the existence of traders with private information is to reduce the liquidity of the market. The institution of the monopolist specialist may...

In Japan, as in the United States, stocks that are more sensitive to changes in the monthly growth rate of labor income earn a higher return on average. Whereas the stock-index beta can only explain 2 percent of the cross-sectional variation in the average return on stock portfolios, the...