A leading explanation of aggregate stock market behavior suggests that assets are priced as if there were a representative investor whose utility is a power function of the difference between aggregate consumption and a "habit" level, where the habit is some function of lagged and (possibly)...

We study the impact on asset prices of illiquidity associated with search and bargaining in an economy in which agents can trade only when they find each other. Marketmakers' prices are higher and bid-ask spreads are lower if investors can find each other more easily. Prices become Walrasian as...

To assess the potential of incomplete consumption insurance for explaining the equity premium and the risk-free rate of return, we use a Taylor series expansion of the individual's marginal utility of consumption around the conditional expectation of consumption and derive an approximate...

In this paper, we develop a search-based model of asset trading. We assume that investors differ in their horizons, and can invest in two identical assets. The asset markets are partially segmented: investors can search in only one market, but can decide which one. We show that there exist a...

I develop a Markov model of samrt money chasing past winning funds while taking into account associated costs. The model also allows market capital entry and exit. The steady-state capital allocations re derived using constant transition probabilities. The results sugget that down side risk is...

This paper examines the long-run dynamics and the cyclical structure of the US stock market using fractional integration techniques. We implement a version of the tests of Robinson (1994a), which enables one to consider unit (or fractional) roots both at the zero (long-run) and at the cyclical...

This paper develops a search-theoretic model of the cross-sectional distribution of asset returns. It abstracts from risk premia and focuses exclusively on liquidity. A float-adjusted return model (FARM) is derived, explaining the pricing of liquidity with a simple linear formula: In...

We introduce continuous-time models that capture the salient features of the short-term interest rate and remain tractable for asset pricing applications. We extend classical specifications within and outside of the affine class to multi-factor settings with latent variables that are readily...

Promising emerging equity markets often witness investment herds and frenzies, accompanied by an abundance of media coverage. Complementarity in information acquisition can explain these anomalies. Because information has a high fixed cost of production, its equilibrium price is low when...

Affine term structure models are widely applied for pricing of bonds and interest rate derivatives but the consistency of affine term structure models (ATSM) in cases when the short rate may be unbounded from below remains essentially an open question. The main stress in the classification paper...