Relative purchasing power parity (PPP) holds for pure price inflations, which affect prices of all goods and services by the same proportion, while leaving relative prices unchanged. Pure price inflations also affect nominal returns of all traded financial assets by exactly the same amount....

Amartya Sen has argued that many development and freedom measures such as health, education, political and civil liberties are important constituents of human welfare. We concur with Sen and conjecture that an important reason these measures affect human welfare is because they allow individuals...

A security design model shows that multinational firms needing to finance their operations should issue different securities to investors in different countries in order to aggregate their disparate information about domestic and foreign cash flows. However, if the firm becomes bankrupt,...

A security design model shows that multinational firms needing to finance their operations should issue different securities to investors in different countries in order to aggregate their disparate information about domestic and foreign cash flows. However, if the firm becomes bankrupt,...

We argue that in the after-market trading of an IPO, the underwriting syndicate, by standing ready to buy back shares at the offer price (quot;price stabilizationquot;), compensates uninformed investors ex post for the adverse selection cost they face in bidding for IPOs. This dominates ex ante...

We propose a simple model in which all agents are rational and symmetrically informed. We show that when some investors hold levered portfolios by engaging in margin borrowing, repeated rounds of trading can result in market instability -- in the sense that prices can move rationally, even in...

We argue that in the after-market trading of an IPO, the underwriting syndicate, by standing ready to buy back shares at the offer price (price stabilization), compensates uninformed investors ex post for the adverse selection cost they face in bidding for IPOs. This dominates ex ante...

We argue that when the offer price of an IPO is set many days before the issue closes for bidding by investors (as is the case in countries such as Hong Kong, Singapore and the U.K.), relevant price information leaks and becomes public knowledge before investors have finished bidding for firm's...

We show that when some investors hold levered portfolios by engaging in margin borrowing, repeated rounds of trading can result in market instability--in the sense that prices can move rationally--even in the absence of any change in fundamentals. We show this with a simple model in which all...