We study a simple rational expectations model whose asset pricing implications address some of the mispricings, informational inefficiencies and overreactions observed in real markets, without a need to resort to behavioural assumptions. We accomplish this by relying on the plausible joint...

Extreme events in financial markets are often generated by shocks that come from within the system, rather than those that arrive from outside the system. The combination of risk-sensitive behavior rules and the coordinated actions implied by market-to-market accounting can result in outcome...

We study an equilibrium model with restricted investor participation in which strategic arbitrageurs reap profits by exploiting mispricings across different trading locations.  We edogonize the asset structure as the outcome of the security design game played by the arbitrageurs.  The...

We study a CAPM economy with segmented financial markets and competitive arbitrageurs who link these markets. We show that the equilibrium of the arbitraged economy is Walrasian in the sense that it coincides with the equilibrium of an appropriately defined competitive economy with no...