Asset Pricing in Created Markets

Asset Pricing in Emerging Markets

Emerging markets provide a formidable challenge to current asset pricing theory. The reason that emerging market do not obey standard asset pricing paradigms can be traced to the lack of complete market integration of many of these markets. Importantly, to understand both the cross-section of expected returns as well as the evolution of expected returns through time in these markets, it is nece...

Asset Pricing Frictions in Fragmented Markets

Asset pricing dynamics in complete markets

The standard general equilibrium asset pricing models typically undertake two common assumptions of homogeneous agents and rational expectations equilibrium. However, this context sometimes yields outcomes that are inconsistent with reality like negligible trading volume. In order to explain the overwhelming evidence of trading volume, I would need to develop a model where the usual no-trade th...

Consumption-Based Asset Pricing with Incomplete Markets

This paper shows that consumption-based asset pricing theory imposes no testable restrictions on either macroeconomic or cross-sectional data if one allows for uninsurable idiosyncratic income shocks which are persistent and not normally distributed. More precisely, this paper shows that any “observed” joint process of arbitrage-free asset prices and payoffs, aggregate consumption, and moments ...

Asset and Derivative Pricing with Incomplete Markets

This paper presents a model where uninsurable income shocks and credit constraints generate a demand for liquidity. Infinitely lived agents purchase a risky asset to self insure themselves against their individual risk. They also trade call options to diversify the aggregate risk they face. In this economy, options are not redundant but complete the market for aggregate risk. We are able to cha...