This paper analyzes the effects that uncertainty about economic fundamentalshas on aggregate trading volume. First, the trading volume of an investor facinga standard consumption portfolio choice problem is derived. It is found that if theparameters describing the investment opportunity set...

Theories of investment suggest that the option value of waiting to invest is significant in many branches of economics, where investment is irreversible. The existing literature has generally failed to account for the general equilibrium feedback effects of lumpy investments on optimal...

Most previous studies demonstrating the influential role of the textual information released by the media on stock market performance have concentrated on earnings-related disclosures. By contrast, this paper focuses on disposal announcements, so that the impacts of listed companies’...

We study the empirical performance of the classical minimum-variance hedging strategy, comparing several econometric models for estimating hedge ratios of crude oil, gasoline and heating oil crack spreads. Given the great variability and large jumps in both spot and futures prices, great care is...

The majority of risk adjusted performance measures (RAPM) currently in use – e.g., Treynor ratio, (?/?)) ratio, Omega index, RoVaR, ‘coherent’ preference criteria, etc. – are incompat- ible with any sensible utility function and would be best avoided. We argue instead for the assessment...

We analyse questions of arbitrage in financial markets in which asset prices change in time as stationary stochastic processes. The main focus of the paper is on a model where the price vectors are independent and identically distributed. In the framework of this model, we find conditions that...

According to the traditional view held in finance returns of assets are determined by complete rationality of decision makers. Rational decisions are defined by a set of axioms that are universal and do not leave room for cultural differences. In this article we show that cultural differences do...

Economists have forcefully argued for the introduction and use of property derivatives as a hedge against house price risk (e.g. Shiller and Weiss, 1999). The rationale for these financial instruments seems clear, as many households are heavily invested in housing and standard financial...

In this paper, we characterize explicitly the first derivative of the Value at Risk and the Expected Shortfall with respect to portfolio allocation when netting between positions exists. As a particular case, we examine a simple Gaussian example in order to illustrate the impact of netting...

This paper presents a theoretical study of how incentives affect hedge fund risk and returns and an empirical study of the performance of a large group of operating hedge funds. Most hedge fund managers receive a flat fee plus a share of the returns above a certain benchmark. We investigate how...