This paper analyzes the effect of career concerns on risky arbitrage. It presents an analytically tractable model where some fund managers can locate arbitrage opportunities, i.e., fundamentally very similar assets with a temporary difference in their price. Fund managers need operating capital from investors to exploit these opportunities. Investors judge the abilities of fund managers and dec...

More and more layers of intermediaries arise in modern financial markets. What determines this chain of intermediation? What are the consequences? We analyze these questions in a stylized search model with an endogenous intermediary sector and intermediation chains. We show that the chain length and the price dispersion among inter-dealer trades are decreasing in search cost, search speed, and ...

Extreme asset price movements appear to be more pronounced recently and have major consequences for an economy’s financial stability and monetary policies. This paper investigates the extreme behaviour of equity market returns and quantifies the probabilities of these losses. Taking fourteen major equity markets the study is able to ascertain similarities and divergences in the tail returns fro...

This paper provides theory as well as empirical results for pre-averaging estimators of the daily quadratic variation of asset prices. We derive jump robust inference for pre-averaging estimators, corresponding feasible central limit theorems and an explicit test on serial dependence in microstructure noise. Using transaction data of different stocks traded at the NYSE, we analyze the estimator...

Substantial progress has been made in developing more realistic option pricing models. Empirically, however, it is not known whether and by how much each generalization improves option pricing and hedging. We ll this gap by rst deriving an option model that allows volatility, interest rates and jumps to be stochastic. Using S&P 500 options, we examine several alternative models from three persp...

This paper analyzes the effect of career concerns on risky arbitrage. It presents an analytically tractable model where some fund managers can locate arbitrage opportunities, i.e., fundamentally very similar assets with a temporary difference in their price. Fund managers need operating capital from investors to exploit these opportunities. Investors judge the abilities of fund managers and dec...

Financial markets witness high levels of activity at certain times but remain calm at others. This makes the flow of physical time discontinuous. Therefore, to use physical time scales for studying financial time series runs the risk of missing important activities. An alternative approach is to use an event-based time scale that captures periodic activities in the market. In this paper, the au...

Estimating Cross-Industry Cross-Country Models Using Benchmark Industry Characteristics* International industry data permits testing whether the industry-specific impact of cross-country differences in institutions or policies is consistent with economic theory. Empirical implementation requires specifying the industry characteristics that determine impact strength. Most of the literature has b...

We model the conditional mean and volatility of stock returns as a latent vector autoregressive (VAR) process to study the contemporaneous and intertemporal relationship between expected returns and risk in a flexible statistical framework and without relying on exogenous predictors. We find a strong and robust negative correlation between the innovations to the conditional moments that leads t...

In this paper we examine non-parametric restrictions on counterfactual analysis in a simple dynamic stochastic general equilibrium model. Under the assumption of timeseparable expected utility and complete markets all equilibria in this model are stationary, the Arrow-Debreu prices uniquely reveal the probabilities and discount factor and the equilibrium correspondence defined as the map from e...