We model a financial market in which companies engage in strategic financial reporting knowing that investors only pay attention to a randomly drawn sample from firms’ reports and extrapolate from this sample. We investigate the extent to which stock prices differ from the fundamental values, assuming that companies must report all their activities but are otherwise free to disaggregate their r...

This paper examines the performance of new online lending markets that rely on non-expert individuals to screen their peers’ creditworthiness. We find that these peer lenders predict an individual’s likelihood of defaulting on a loan with 45% greater accuracy than the borrower’s exact credit score (unobserved by the lenders, who only see a credit category). Moreover, peer lenders achieve 87% of...

We propose an Economic Stability Index (ESI) incorporating house prices and stock prices as components of the measure of the inflation rate in order to allow the European Central Bank (ECB) to achieve both price and macroeconomic stability. We use an optimisation approach to estimate target weights for different sectoral prices in the broader price index, which depend on sectoral parameters oth...

In this paper, we consider the problem of optimal investment, consumption and life insurance for a wage earner who has constant relative risk aversion(CRRA)preferences. The wage earner can invest in zero-coupon bond, stock and life insurance, and can make consumption decision. The interest rate and the volatility of the stock are stochastic, which results in incomplete market. Besides, the labo...

This paper shows that the presence of intermediaries’ market power in decentralized asset markets reduces volumes traded and increases price volatility. I develop a method to estimate the degree of intermediaries’ market power from trading data and I apply it to the US municipal bond market using a new dataset containing all trades executed in this market. I find a high degree of dealer market ...

This paper studies portfolio choice and pricing in markets in which immediate trading may be impossible. It departs from the literature by removing restrictions on asset holdings, and finds that optimal positions depend significantly and naturally on liquidity: When expected future liquidity is high, agents take more extreme positions, given that they do not have to hold those positions for lon...

The BP Deepwater Horizon oil spill of 2010 has focused considerable attention on the potential liability and the operating conduct of big oil companies. This paper shows that limiting the ability of a company to insure and diversify its risks creates incentives to internalize the welfare effects of catastrophic events, leading to a welfare improvement. We model an economy with complete financia...

We analyze large gauge invariance in the non-Abelian, finite temperature context and its physical consequences for D53 effective actions. After briefly reviewing the structure of bundles and large gauge transformations that arise in nonsimply connected 3-manifolds and gauge groups, we discuss their connections to Chern-Simons terms and Wilson-Polyakov loops. We then provide an invariant charact...