We test the market impact of the disposition effect. We rely on the Grinblatt and Han (2002) model and derive testable implications about the expected relationship between the preponderance of disposition investors in the market and stock volatility, return and trading volume. We use a large...

This paper explores the implications of financial system design for financial innovation. We begin with assumptions about the investment opportunities of firms, their observable attributes, and the roles of commericial banks, investment banks, and the financial market. We examine the borrower's...

The electronic trading system Xetra of the German Security Exchange provides a unique data source on the equity trades of 451 large traders located in 23 different cities and 8 European countries. We explore informational asymmetries across the trader population: Traders located outside Germany...

We develop a model of price formation in a dealership market where monitoring of the information flow requires costly effort. The result is imperfect monitoring, which creates profit opportunities for speculators, who do not act as dealers but simply monitor the information flow and quote...

We show that a cross-listing allows a firm to make better investment decisions because it enhances stock price informativeness. This theory of cross-listings yields a rich set of new predictions. In particular, it implies that the sensitivity of investment to stock prices should be larger for...

We investigate if the proxy voting process transmits valuable information from shareholders to management. A simple strategic voting model is developed and tested in a large sample of management proposals. The evidence suggests that voting is strategic in the sense that shareholders take into...

This Paper develops a test of contagion in financial markets based on bivariate correlation analysis, which generalizes existing tests, and applies it to the international effects of the Hong Kong stock market crisis of October 1997. Contagion is defined as a structural break in the...

This Paper analyses the issues raised by EMU for the relationships between the Euro area and the international financial system. The depreciation of the Euro exchange rate since the beginning of EMU has attracted most attention. The Paper argues that theory and the data support none of the...

This Paper uses restrictions implied by cointegration to identify the permanent and transitory elements (the ‘trend’ and ‘cycle’) of household asset wealth. Our empirical analysis yields answers to the following questions: 1. Is there a large transitory component in household net worth...

We develop a performance evaluation approach in which a fund manager's skill is judged by the extent to which his investment decisions resemble the decisions of managers with distinguished performance records. The proposed performance measures are estimated more precisely than standard measures,...