We study a financial market where asymmetric information, mispricing and jumps exist, and link the random optimal portfolios of informed and uninformed investors to the deterministic optimal portfolio of the symmetric market, where no mispricing exists. In particular, we show that under quadratic approximation, the expectation of the random optimal portfolio in the asymmetric market is equal to...

We study how a firm’s decision to offer bonds of various maturities affects the portfolio allocations of institutional investors. We argue that because of lower information-collection costs, institutional investors tilt their portfolios towards firms that offer bonds of various maturities. We show that this translates into lower bond yields, both in the primary and in the secondary bond markets...

Existing studies have found that ex post stock returns are positively skewed, but such skewness is only persistent for individual stocks, not for portfolios. This implies that the ex post knowledge of skewness may not be useful in ex ante portfolio selection. However, the portfolios in these studies are not optimally formed because preferences for skewness are not taken into consideration when ...

This paper provides a novel method for identifying informed institutional trading. I argue that, given an information signal about a stock, an investor’s tastes for certain characteristics of that stock can influence his decision to trade on the information. Thus, trades which deviate from an investor’s tastes are more likely to reflect information. I test this hypothesis with respect to invest...

We study the link between social interaction and portfolio choice. We concentrate on a form of interaction that is rooted back in the past: college-based interaction — defined as the one that relates the portfolio choice of an investor to that of the other investors who went to the same college. We explain it in terms of a common cultural imprinting and the development of long-term friendship a...

This paper investigates a dynamic CAPM in which investors may trade in put option contracts which are zero in net supply. In each period, stock and option prices are endogenously and simultaneously determined by market clearing in the respective markets. We investigate how these endogenously formed option prices impact on prices and portfolio allocations. The introduction of a put-option market...