This paper analyzes market mispricings as a function of arbitragers' confidence in their valuation estimates and subjective predictions about the future trades of other investors. New insights on the nature of investor psychology are revealed that help explain market cycles and anomalies like...

This paper demonstrates analytically how short sellers can put non-transitory downward pressure on the stock market prices and intrinsic values of companies that need to raise external capital because of insufficient internal liquidity. The model helps explain anomalous empirical findings in the...