I study a general equilibrium model in which investors face endowment risk and trade two correlated assets; one asset is traded on a liquid market whereas the other is traded on an illiquid over-the-counter (OTC) market. Endowment shocks not only make prices drop, they also make the OTC asset...

We identify long-lived pricing errors through a model in which inattentive investors arrive stochastically to trade. The model’s parameters are structurally estimated using daily NYSE market-maker inventories, retail order flows, and prices. The estimated model fits empirical variances,...

We develop an equilibrium model of commodity spot and futures markets in which commodity production, consumption, and speculation are endogenously determined. Speculators facilitate hedging by the commodity suppliers. The entry of new speculators thus increases the supply of the commodity and...

Regardless of whether the CAPM is rejected for valid reasons or by mistake, a single long-short portfolio will always explain, together with the market, 100% of the cross- sectional variation in returns. Yet, this portfolio, which we coin the “Low-Minus-High (LMH) portfolio,” need not proxy...

A pervasive empirical finding is that mutual fund managers do not maintain their performance. In this paper, I show that social interactions can explain this fact. To do so, I allow a “crowd” of managers to meet at random times and exchange ideas within a rational-expectations equilibrium...

We build an information-based two-country general equilibrium model. There are two dividend processes with correlated growth rates. Agents observe a global public signal informative about both growth rates. We first let agents rationally process information, and then we allow for reasonable...

We build an equilibrium model to explain why stock return predictability concentrates in bad times. The key feature is that investors use different forecasting models, and hence assess uncertainty differently. As economic conditions deteriorate, uncertainty rises and investors' opinions...