I analyze annual returns of the S&P 500 from 1993 – 1998. Future returns of the market are predicted using current dividend yield levels, past risk free returns and a standard deviation variable over the preceding five years. Evidence from the article suggests that future returns can be predicted when combing dividend yields with recent volatility in the market. This article suggests that recen...

We discuss a Lévy multivariate model for financial assets which incorporates jumps, skewness, kurtosis and stochastic volatility. We use it to describe the behavior of a series of stocks or indexes and to study a multi-firm, value-based default model. Starting from an independent Brownian world, we introduce jumps and other deviations from normality, including non-Gaussian dependence. We use a ...

We find important differences in dollar-based and dollar-neutral G10 carry trades. Dollar-neutral trades have positive average returns, are highly negatively skewed, are correlated with risk factors, and exhibit considerable downside risk. In contrast, a diversified dollar-carry portfolio has a higher average excess return, a higher Sharpe ratio, minimal skewness, is unconditionally uncorrelate...

This paper characterizes the relationship between entrepreneurial wealth and aggregate investment under adverse selection. Its main finding is that such a relationship need not be monotonic. In particular, three results emerge from the analysis: (i) pooling equilibria, in which investment is independent of entrepreneurial wealth, are more likely to arise when entrepreneurial wealth is relativel...

This paper tests whether traders react more strongly as a series of similar earnings surprises continues, as predicted by several important behavioral finance models. We compile measures of buying and selling from NYSE TAQ data for a large ten-year sample. Results show strong, consistent, evidence that small traders exhibit an increasing reaction – with significant increases in reaction strengt...

Recently, stock exchanges have altered their trading fees to subsidize liquidity by offering “make” rebates for providing liquidity through limit orders and charging “take” fees for consuming liquidity via marketable orders, leading to debate regarding the impact of these fees on market quality. Using an exogenous experiment performed by NASDAQ in 2015, I employ difference-in-differences analys...

This paper tests the expectations hypothesis (EH) using US monthly data for bond yields spanning the 1952-2003 sample period and ranging in maturity from 1 month to 10 years. We apply the Lagrange multiplier test developed by Bekaert and Hodrick (2001) and extend it to increase the test power: (a) by introducing economic variables as conditioning information; and (b) by using more than two bond...

Using the intraday data on the Taiwan Stock Exchange (TWSE), we address the issue of the informativeness of the limit order book in the periodic call market. We find that the pre-call information variables, i.e., the market order and the radius of the limit order book, have significant impacts on the trade variables, i.e., the trading volume, the post-call bid-ask spread, and the trader surplus...

The question of how useful information in financial markets is has been discussed for decades and is still unresolved. In this paper we challenge the widely held belief that success and failure in the stock market can largely be attributed to the information underlying the trading decisions. We present a dynamic multi-period experimental financial market with asymmetrically informed traders who...

The incomplete information financial economic equilibrium (IIE) literature has been growing at a growing rate since its inception in the early nineteen eighties. This paper highlights, clarifies, and examines issues and concepts essential to this equilibrium. These include: the number of state variables, irrelevance of separation theorems, unobservable productivity processes that lead to comple...