In this paper we analyze in what way the demand generated by dynamic hedging strategies affects the equilibrium prices of the underlying asset. We derive an explicit expression for the transformation of market volatility under the impact of hedging. It turns out that market volatility increases...

This paper delevops a tools to analyse the ordering of concordance of random vectors.

We prove a version of the Fundamental Theorem of Asset Pricing, which applies to Kabanov's approach to foreign exchange markets under transaction costs. The financial market is modelled by a d x d matrix-valued stochastic process Sigma_t_t=0^T specifying the mutual bid and ask prices between d...

We investigate a consumption-based present value relation that is a function of future dividend growth. Using data on aggregate consumption and measures of the dividend payments from aggregate wealth, we show that changing forecasts of dividend growth are an important feature of the post-war...

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...

We examine overconfidence among equity mutual fund managers. While overconfidencehas been extensively documented among retail investors, evidence fromprofessional investors is scarce. Consistent with theories of overconfidence, we findthat fund managers trade more after good past performance....

We use data on actual holding periods for all investors in a stock market over a10-year period to investigate the links between holding periods, liquidity, and assetreturns. Microstructure measures of liquidity are shown to be important determinantsof the holding period decision of individual...

We study a new class of three-factor affine option pricing models with interdependent volatilitydynamics and a stochastic skewness component unrelated to volatility shocks. Theseproperties are useful in order (i) to model a term structure of implied volatility skews moreconsistent with the data...

We show that since 1994, branching deregulations in the U.S have signi…cantly af-fected the supply of mortgage credit, and ultimately house prices. With deregulation,the number and volume of originated mortgage loans increase, while denial rates fall.But the deregulation has no effect on a...