Abstract Many financial instruments are designed with embedded leverage, such as options and leveraged exchange-traded funds (ETFs). Embedded leverage alleviates investors’ constraints, and, therefore, we hypothesize that lowers required returns. Consistent this hypothesis, find empirically ETFs provide significant amounts of leverage; increases return volatility in proportion to the higher is ...

Our experiments investigate the extent to which traders learn from price, differentiating between situations where orders are submitted before versus after price has realized. In simultaneous markets with bids that conditional on neglect information conveyed by hypothetical value of price. sequential is known prior bid submission, react an roughly consistent benchmark theory. The difference’s r...

This paper studies how security design affects project outcomes. Consider a firm that raises capital for multiple projects by offering investors share of the revenues. The revenue each is determined ex post through bargaining with buyer output. Thus, choice feasible payoffs game. We characterize securities achieve firm’s maximal equilibrium payoff in bilateral and multilateral negotiations. In ...

Abstract We illustrate the role of left tail dependence—left mean (LTM)—in equity risk premium (ERP) predictability. LTM measures average pairwise dependency among major sectors incorporating shocks imperceptible at aggregate level. LTM, as well variance premium, significantly predicts ERP in and out sample, which is not case with commonly used predictors. find this predictability result procyc...

We provide evidence of the stock market consumption wealth effect by using a local labor analysis. An increase in driven aggregate prices increases employment and payroll nontradable industries total, with no on tradable industries. In model geographic heterogeneity wealth, these responses imply an MPC 3.2 cents per year that 20 percent valuations, unless countered monetary policy, bill at leas...

In a stock market experiment, we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe future prices after or not. Without prices, participants are affected only by about previously observed high (past regret), but when available, also avoid expected after-sale (future regret). Moreover, as...

Financial innovation in recent decades has expanded portfolio choice. We investigate how greater choice affects investors’ savings and asset returns. establish a channel by which increases savings—by enabling them to earn the aggregate risk premium or take speculative positions. In equilibrium, customization (access risky assets beyond market portfolio) reduces risk-free rate. Participation but...

Commonly used instruments for the identification of monetary policy disturbances are likely to combine true shock with information about state economy due disclosed through action. We show that this signaling effect can give rise empirical puzzles reported in literature, and propose a new high-frequency instrument shocks accounts informational rigidities. find tightening is unequivocally contra...

We provide a necessary and a sufficient condition on an individual’s expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual’s demand for options and portfolio insurance. JEL Classification Codes: D51, D58, D81, G11, G12, G13.