Investors significantly reduce their future returns by selecting mutual funds with higher fees, allured by higher past returns that do not predict future performance. This suboptimal behavior, which can roughly halve an investor’s retirement savings, is driven by two psychological factors. One factor is difficulty comprehending rate information, which is critical given that mutual fund fees and...

We suggest a methodology for the construction of a set of interest rate volatility indices for the Eurozone (EIRVIXs) based on the implied volatility quotes of caps (floors), one of the most liquid interest rate derivatives. These indices reflect the market’s aggregate expectation of volatility of forward rates over both shortand long-term horizons (from one to ten years ahead). Volatility indi...

This paper sheds empirical light on whether investor sentiment affects the profitability of price momentum strategies. We hypothesize that when investors are optimistic, their expectations will be more miscalibrated relative to those obtained from objective probabilities, and arbitrage will be more difficult with short-selling constraints. Our results show that momentum rises only when investor...

Due to the nature of available land as one of the main attractions for investment, land lease marketing in Sub-Saharan Africa is appearing on policy agenda. This paper describes critical land-related institutional and governmental frameworks that have shaped the contemporary land governance and land lease contracts in Ethiopia. It also examines the effectiveness of the land lease process regard...

This paper proposes a dynamic equilibrium model to study the implications of the complexity of financial securities for investor behavior, asset prices, and welfare. The key assumption is that, unlike fund managers, non-professional investors cannot directly observe complex securities’ payoffs. In equilibrium, fund managers overinvest in complex securities as these potentially allow them to inf...

Abstract The concept of mutual fund emerged in Netherlands in 18th century and introduced in India by Unit Trust of India in1960s. As the mutual fund industry provides an option of diversified investment structure with varying degree of risk, it was supposed to be the most lucrative market for Indian investors. It was believed that it will surely tap the savings of common man. But in practice i...

If the underlying asset price process is unknown, arbitrageurs may not have sufficient incentive and confidence to use the underlying asset to arbitrage options. The option market makers can hedge their portfolios of temporary option inventories without the underlying asset, but investors’ risk attitudes and heterogeneous expectations could become relevant to option pricing. This paper shows th...

We explore a model of the interaction between banks and outside investors in which the ability of banks to issue inside money (short-term liabilities believed to be convertible into currency at par) can generate a collapse in asset prices and widespread bank insolvency. The banks and investors share a common belief about the future value of certain long-term assets, but they have different obje...

A recent common view of finance experts is that it is becoming increasingly difficult to understand how the economy as a whole works. Although the efficient market theory might be considered an ideal model enabling the interpretation of market behavior, it has begun to lose ground, and the rationality hypothesis failed to explain the excessive volatility of the returns and trading volume record...

We study a pure exchange economy where two classes of infinitely-lived identical isoelastic traders with heterogeneous expectations about state transitions trade a risky asset and a riskless bond. We provide conditions on agents’ preferences and beliefs under which a speculative phenomenon as reported in Harrison and Kreps (1978) arises. No speculation appears when the risk aversion coefficient...