This paper studies the optimal policies of borrowers (firms or individuals) who may default subject to default costs, and analyzes the asset pricing implications. Borrowers defaulting under adverse economic conditions may, despite incurring default costs, emerge as wealthier than non-borrowers...

This paper analyzes optimal, dynamic portfolio and wealth/consumption policies of utility maximizing investors who must also manage market-risk exposure using a given risk-management model. We focus on the industry standard, the Value-at-Risk (VaR) based risk management, and find that VaR risk...

Empirical evidence indicates that trades by institutional investors have sizable effects on asset prices, generating phenomena such as index effects, asset-class effects and others. It is difficult to explain such phenomena within standard representative-agent asset pricing models. In this...

We develop a tractable model of costly stock short-selling and lending market within a familiar dynamic asset pricing framework. The model addresses the vast empirical literature in this market and generates implications that support many of the empirical regularities. In the model, investors'...

Mean-variance criteria remain prevalent in multi-period problems, and yet not much is known about their dynamically optimal policies. We provide a fully analytical characterization of the optimal dynamic mean-variance portfolios within a general incomplete-market economy, and recover a simple...

This article analyzes the dynamic portfolio choice implications of strategic interaction among money managers. The strategic interaction is modelled as managers' having relative performance concerns in their objectives, either due to money flows or behavioral considerations. We provide tractable...