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Can Rare Events Explain the Equity Premium Puzzle?

Ghosh, Anisha; Julliard, Christian - C.E.P.R. Discussion Papers - 2012

Probably not. First, allowing the probabilities of the states of the economy to differ from their sample frequencies, the Consumption-CAPM is still rejected in both U.S. and international data. Second, the recorded world disasters are too small to rationalize the puzzle unless one assumes that...

Persistent link: https://www.econbiz.de/10011084458

Volatility Clustering and Volatility Transmission: A Non-Parametric View of ERM Exchange Rates

Artis, Michael J; Zhang, Wenda - C.E.P.R. Discussion Papers - 1997

This paper considers the evidence for volatility clustering and transmission in six bilateral Deutsche mark ERM exchange rates. Data on daily exchange rate changes are described by a mixture of two normal distributions. One of these contains observations of volatile exchange rate changes while...

Persistent link: https://www.econbiz.de/10005792273

The Dynamics of Financially Constrained Arbitrage

Gromb, Denis; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2015

We develop a model of financially constrained arbitrage, and use it to study the dynamics of arbitrage capital … the dynamics of arbitrage activity are self-correcting: following a shock that depletes arbitrage capital, profitability … trades, although arbitrageurs cut their positions in these trades the least. When arbitrage capital is more mobile across …

Persistent link: https://www.econbiz.de/10011184076

On the Role of Arbitrageurs in Rational Markets

Basak, Suleyman; Croitoru, Benjamin - C.E.P.R. Discussion Papers - 2004

markets. Arbitrage opportunities between redundant risky assets arise endogenously in an economy populated by rational …, heterogeneous investors facing restrictions on leverage and short sales. An arbitrageur, indulging in costless, riskless arbitrage … arbitrageur lacks market power, they always take on the largest arbitrage position possible. When the arbitrageur behaves …

Persistent link: https://www.econbiz.de/10005123691

Covered Purchasing Power Parity, Ex-Ante PPP and Risk Aversion

Moore, Michael J - C.E.P.R. Discussion Papers - 1992

The standard expectations augmented theory of ex-ante purchasing power parity (PPP), which was first developed by Roll, assumes that agents are risk neutral. A Covered Purchasing Power Condition is developed which holds for the general case of risk aversion. A risk-augmented form of ex-ante PPP...

Persistent link: https://www.econbiz.de/10005124291

Arbitrage, Hedging and Financial Innovation

Davidson, Malcolm - C.E.P.R. Discussion Papers - 1996

I present a simple model in which it is possible that opening a new market makes everybody worse off. Unlike previous examples in the literature, the analysis does not rely on relative price changes of different consumption goods. This is shown in a standard framework in which uninformed traders...

Persistent link: https://www.econbiz.de/10005504789

Equilibrium and Welfare in Markets with Financially Constrained Arbitrageurs

Gromb, Denis; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2001

We propose a multi-period model in which competitive arbitrageurs exploit discrepancies between the prices of two identical risky assets, traded in segmented markets. Arbitrageurs need to collateralize separately their positions in each asset, and this implies a financial constraint limiting...

Persistent link: https://www.econbiz.de/10005666703

Moderating Political Extremism: Single Round vs Runoff Elections under Plurality Rule

Bordignon, Massimo; Nannicini, Tommaso; Tabellini, Guido - C.E.P.R. Discussion Papers - 2014

We compare single round vs runoff elections under plurality rule, allowing for partly endogenous party formation. Under runoff elections, the number of political candidates is larger, but the influence of extremist voters on equilibrium policy and hence policy volatility is smaller, because the...

Persistent link: https://www.econbiz.de/10011145395

Betting the House

Jordà, Òscar; Schularick, Moritz; Taylor, Alan M. - C.E.P.R. Discussion Papers - 2014

Is there a link between loose monetary conditions, credit growth, house price booms, and financial instability? This paper analyzes the role of interest rates and credit in driving house price booms and busts with data spanning 140 years of modern economic history in the advanced economies. We...

Persistent link: https://www.econbiz.de/10011145419

Consumer Search and Prices in the Automobile Market

Moraga-González, José-Luis; Sándor, Zsolt; … - C.E.P.R. Discussion Papers - 2015

In many markets consumers have imperfect information about the utility they derive from the products that are on offer and need to visit stores to find the product that is the most preferred. This paper develops a discrete-choice model of demand with optimal consumer search. Consumers first...

Persistent link: https://www.econbiz.de/10011201362

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