Speculators can discover whether a signal is true or false by processing it but this takes time. Hence they face a trade-off between trading fast on a signal (i.e., before processing it), at the risk of trading on a false positive, or trading after processing the signal, at the risk that prices...

Standard Fama-French and Carhart models produce economically and statistically significant nonzero alphas even for passive benchmark indices such as the S&P 500 and Russell 2000. We find that these alphas primarily arise from the disproportionate weight the Fama-French factors place on small...

Existing theories of the term structure of swap rates provide an analysis of the Treasury-swap spread based on either a liquidity convenience yield in the Treasury market, or default risk in the swap market. While these models do not focus on the relation between corporate yields and swap rates...

Substantial progress has been made in extending the Black-Scholes model to incorporate such features as stochastic volatility, stochastic interest rates and jumps.On the empirical front, however, it is not yet known whether and by how much each generalized feature will improve option pricing and...

Substantial progress has been made in extending the Black- Scholes model to incorporate such features as stochastic volatility, stochastic interest rates and jumps. On the empirical front, however, it is not yet known whether and by how much each generalized feature will improve option pricing...

This article empirically analyzes some properties shared by all one-dimensional diffusion option models. Using S&P 500 options, we find that when sampled intraday (or inter-day), (i) call (put) prices often go down (up) even as the underlying price goes up, and (ii) call and put prices often...

Recent empirical studies find that once an option pricing model has incorporated stochastic volatility, allowing interest rates to be stochastic does not improve pricing or hedging any further while adding random jumps to the modeling framework only helps the pricing of extremely short-term...

In this study we re-examine the pricing of equity and the risk incentives of shareholders in levered firms. We derive a down-and-out call equity valuation model which rests on the assumption that shareholders choose the optimal investment and asset returns' volatility as a function of current...

Arguments for creating a market to allow trading the portfolio of all endowments in the entire world, the "market portfolio," are considered. This world share market would represent a radical innovation, since at the present time only a small fraction of world endowments are traded. Using a...

Aggregate art price patterns mask a lot of underlying variation — both in the time series and in the cross-section. The authors argue that, to increase our understanding of the market for aesthetics, it is helpful to take a micro perspective on the formation of art prices, and acknowledge that...