In this paper, we derive and experimentally test a theoretical model of speculation in multiperiod asset markets with public information flows. The speculation arises from the traders’ heterogeneous posteriors as they make different inferences from sequences of public information. This leads to overpricing in the sense that price exceeds the most optimistic belief about the real value of the as...

This paper examines the conditions under which members of a defined benefit pension plan might bear investment risk, and examines the tradeoffs between defined benefit and defined contribution pension plans under these conditions. Wages and asset returns are assumed to be stochastic, and individuals are assumed to have no access to other savings markets or markets where human capital risk can b...

A new probabilistic approach is proposed to study variance and volatility swaps for financial markets with underlying asset and variance that follow the Heston (1993) model. We also study covariance and correlation swaps for the financial markets. As an application, we provide a numerical example using S&P60 Canada Index to price swap on the volatility.

explanation relation between risk and return and capital asset pricing are concepts which is appointed as dominator and major paradigms in capital markets. so far as after offering capm by sharp & lintner, this model has been revised and criticized frequently. in this paper another version of capm has been tested versus traditional capm in tehran stock exchange. this version of capm measures se...

In the first module of this class we will study asset pricing implications of recursive contract theory. I will start by reviewing asset pricing in complete markets. Chapter 8 in Ljungqvist and Sargent (2004) provides background reading. The main topic of this module is asset pricing in an environment with limited commitment. As in the complete markets environment, agents can still trade a comp...

In a simple economy firms arise because there are economies of scale in intertemporal production. Consequently, agents must borrow in order to produce. Because overlapping generations of workers do not live long enough to make credible promises to repay, infinitely lived patient capitalists are the only producers. However, the behavior of capitalists is imperfectly monitored by the workers. All...

Liquidity is generally viewed as a positive characteristic of a traded asset in positive net supply. Ceteris paribus, the higher liquidity of a given asset should be reflected in a higher price or a lower required return. This issue is of particular interest if the same asset is traded in multiple markets. In this setting, apart from the effect of liquidity on pricing in each market, there is t...

This paper sheds light on the mutual discipline, which asset market observations and macroeconomic observation impose on each other. Economic choices such as consumption and leisure, which are taken as exogenous in much of the asset pricing literature, and which may suggest certain preference specifications in order to explain asset price observations in turn may have undesirable macroeconomic ...

I investigate the behavior of individual investors in an experimental asset market that features a bubble. Subjects trade a risky asset at prices that do not change in response to their trades. The prices are taken from the outcome of a previous asset market experiment. This unique setup makes it possible to identify behavioral di¤erences between subjects who understand asset fundamentals and t...