A Hidden Markov Chain (HMC) is applied to study the forward premium puzzle. The weekly quotient of the interest rate differential divided by the log exchange rate change is modeled as a Hidden Markov process. Compared with existing standard approaches, the Hidden Markov approach allows a...

We study an important recent series of multi-item multi-unit auctions conducted by the U.S. Treasury in retiring $67.5 billion of its debt. Consistent with auction theory, we find that bidders earn a small volatility-related expected profit as compensation for bearing the risk of the...

The shape of the term structure of credit default swap (CDS) spreads displays large variations over time and across firms. Consistent with the predictions of structural models of credit risk, we find that the slope of CDS spread term structure increases with firm leverage and volatility, but...

Parity, and whether the test is cross-sectional versus time series.

This paper examines the characteristics and pricing of stocks that are actively traded by speculative retail investors. We find that stocks with high retail trading proportion (RTP) have strong lottery features and they attract retail investors with strong gambling propensity. Furthermore, these...

The nonparametric maximum likelihood estimator (NPMLE) is a popular approach to estimating decreasing densities, i.e., f(s)≥f(t),s≤t. A less ideal feature of NPMLE is its step-function form. In this paper, we propose two nonparametric density estimators based on the Bernstein-type...

We develop a model of product differentiation in which firms strategically compete in product quality and advertising intensity. Products exhibit a combination of vertical and horizontal differentiation. A consumer’s utility has a stochastic relationship with quality, but they are more likely...

Prior experimental and empirical research documents that many investors have a lower propensity to sell those stocks on which they have a capital loss. This behavioral phenomenon, known as \the disposition effect," has implications for equilibrium prices. We investigate the temporal pattern of...

We develop a model of product differentiation in which firms strategically compete in product quality and advertising intensity. Consumers face a trade-off between higher quality goods and price. Increased competition may lead to higher or lower quality products. Consumers always benefit from...