Is there asymmetry in the distribution of government bond returns in developed countries? Can asymmetries be predicted using financial and macroeconomic variables? To answer the first question, we provide evidence for asymmetry in government bond returns in particular for short maturities. This...

To assess how financial markets and commodities are inter-related, this paper introduces a ‘volatility surprise’ component into the asymmetric DCC with one exogenous variable (ADCCX) framework. We develop an econometric model in which returns and volatility allow to influence pairs of...

This paper empirically examines whether asset’s liquidity can help resolve the known strike-price biases of the Black-Scholes model for different liquidity measures based on trading volume, bid-ask spread and the Amihud’s ILLIQ. Our results indicate that, when the underlying asset...

Disputes whether financial structure can create value or not were started more than 50 years ago with Modigliani Miller theorem. In this paper I would like to present my own view on level of debt in value creation process. What I am going to prove is that due to expansion option companies with...

In real world situations the fundamental value of an asset is ambiguous. Recent theory has incorporated ambiguity in the dividend process and the information observed by investors, and studied its effect on asset prices. In this paper we experimentally study trader reaction to ambiguity when...

We propose a theory that jointly accounts for an asset illiquidity and for the asset price potential over-reliance on public information. We argue that, when trading frequencies differ across traders, asset prices reflect investors' Higher Order Expectations (HOEs) about the two factors that...

Standard consumption-based asset pricing models focus on the consumption risk, seen as the only source of fluctuations and information about risk for the informed investor. These models, however, can account for high expected excess stock return only when assuming implausible relative risk...

We consider a two-period market with persistent liquidity trading and risk averse privately informed investors who have a one period horizon. With persistence, prices reflect average expectations about fundamentals and liquidity trading. Informed investors engage in “retrospective” learning...

In a market with short term agents and heterogeneous information, when liquidity trading displays persistence, prices reflect average expectations about fundamentals and liquidity trading. Informed investors exploit a private learning channel to infer the demand of liquidity traders from the...

It is generally accepted that excessive exuberance or gloom in investor sentiment contributes to booms and crashes in share prices. However, views differ on the merits of active policy intervention due to gaps in our understanding of the transmission mechanism. To fill this gap we apply a fully...