We provide empirical evidence for the incomplete information model advanced by Merton (1987), which shows that the relation between idiosyncratic volatility (IV) and expected return is conditional on the firm's investor base. Using four different proxies for investor base, we show that...

How can economically costly discrimination persist in a competitive market? Previous research into this question has focused on market imperfections which prevent competitive forces from eliminating the economically costly behavior. In this paper we show that lending discrimination is not always...

We analyze a simple model of bank lending in order to illustrate what can be inferred from relative denial and default rates about lending discrimination. We show that if minority applicants are of lower average creditworthiness than majority applicants, then, contrary to a popular argument, a...

We consider trading costs in the transparent, competitive open outcry markets of the Chicago Mercantile Exchange (CME) in which market makers have no affirmative obligation to trade. We document that while CME spreads are similar in magnitude to those in other markets, realized spreads are often...

Many empirical quot;anomaliesquot; are actually consistent with the single beta CAPM if the empiricist utilizes an equity-only proxy for the true market portfolio. Equity betas estimated against this particular inefficient proxy will be understated, with the error increasing with the firm's...

Many empirical quot;anomaliesquot; are actually consistent with the single beta CAPM if the empiricist utilizes an equity-only proxy for the true market portfolio. Equity betas estimated against this particular inefficient proxy will be understated, with the error increasing with the firm's...