Preferred-Habitat Investors and the US Term Structure of Real Rates
We estimate structurally a model of the term structure of interest rates that is consistent with no arbitrage but allows for demand pressures. The...
Trading and Voting in Distressed Firms
We investigate the effect of the ability of “non-traditional” funds to short-sell the equity of their debtors. This enables the funds to vote on the...
Trading Frenzies and Their Impact on Real Investment
We study a model where a capital provider learns from the price of a firm’s security in deciding how much capital to provide for new investment. This...
Bond Market Clienteles, the Yield Curve and the Optimal Maturity Structure of Government Debt
We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at...
Fund Flows and Asset Prices: A Baseline Model
We study flows between investment funds and their effects on asset prices in a simple twoperiod version of Vayanos and Woolley (2010, VW). As in VW...
An institutional theory of momentum and reversal
We propose a rational theory of momentum and reversal based on delegated portfolio management. Flows between investment funds are triggered by changes...
Balance Sheet Capacity and Endogenous Risk
Banks operating under Value-at-Risk constraints give rise to a well-defined aggregate balance sheet capacity for the banking sector as a whole that...
The Price Impact of Institutional Herding
In this paper we develop a simple theoretical model to analyze the impact of institutional herding on asset prices. A growing empirical literature has...
Institutional Trade Persistence and Long-term Equity Returns
Recent studies show that single-quarter institutional herding positively predicts short-term returns. Motivated by the theoretical herding literature...
Innovations, rents and risk
We offer a rational expectations model of the dynamics of innovative industries. The fundamental value of innovations is uncertain and one must learn...
The Future of Finance: Chapter 3
This chapter offers a new understanding of how financial markets work. The key departure from conventional theory is to recognize that investors do...
Trading and Voting in Distressed Firms
We investigate the effect of the ability of “non-traditional” funds to short-sell the equity of their debtors. This enables the funds to vote on the...
Limits of Arbitrage: The State of the Theory
We survey theoretical developments in the literature on the limits of arbitrage. This literature investigates how costs faced by arbitrageurs can...
The Price Impact of Institutional Herding
In this paper we develop a simple theoretical model to analyze the impact of institutional herding on asset prices. A growing empirical literature has...
Rent Capture Through Financial Innovation
How does economic theory need to adjust in light of the global financial crisis? This column presents a new insight on how innovation leads to rent...
Connected Stocks
By connecting stocks through common active mutual fund ownership, we forecast cross-sectional variation in return covariance, controlling for...
