Almost all real assets trade in decentralized markets, where trading frictions could inhibit the efficiency of asset allocations and depress asset prices. In this paper, I use data on commercial aircraft markets to empirically investigate whether trading frictions vary with the size of the asset market. Intuitively, it is more difficult to sell assets that have a thin market. As a result, firms...

We consider the impact of “large” changes in asset prices on intra-market correlations in domestic and international markets. Assuming normally distributed asset returns, we show that the absolute magnitude of the correlation, conditional on a change greater than or equal to a given absolute size of one of the variables, is monotonically increasing in the magnitude of that absolute change. Empi...

This paper studies a model of strategic trading with asymmetric information of an asset whose value follows a Brownian motion. An insider continuously observes a signal that tracks the evolution of the asset’s fundamental value. The value of the asset is publicly revealed at a random time. The equilibrium has two regimes separated by an endogenously determined time T . In [0, T ), the insider g...

This paper examines how an asset price is determined in a market, and how it changes as circumstances in the market change, making use of a standard asset price model. The motivation of the paper is to examine if the model can explain a bubble economy in which individuals are risk averse. It is known that if the relative risk aversion of an investor’s utility function does not exceed 1 and is n...

We consider a model of strategic trading with asymmetric information of an asset whose value follows a Brownian motion. An insider continuously observes a signal that tracks the evolution of the asset’s fundamental value. The value of the asset is publicly revealed at a random time. The equilibrium has two regimes separated by an endogenously determined time T . In [0 T ), the insider gradually...

A prediction market allows a group of traders to form a consensus probability distribution by entering into agreements that pay o↵ contingent on events of interest. A combinatorial prediction market allows conditional trades or trades on Boolean combinations of events to form a joint distribution over many related events. Sun et al. (2012) showed how to use a junction tree to update both the co...

We consider a market where a risky asset with a well defined fundamental value is traded. We have in our mind a future, whose fundamental value is its terminal value. In the market there are three groups of agents: feedback traders, fundamental traders and noise traders. Feedback traders base their strategy on the past evolution of the asset price. We consider only positive feedback traders who...

The risk-sensitive asset management problem with a finite horizon is studied under a financial market model having a Wishart autoregressive stochastic factor, which is positive-definite symmetric matrix-valued. This financial market model has the following interesting features: 1) it describes the stochasticity of the market covariance structure, interest rates, and the risk premium of the risk...

Effective tradingwith given pattern-based multi-predictors of stock price needs an intelligent asset allocation strategy. In this paper, we study a method of dynamic asset allocation, called the meta policy, which decides how much the proportion of asset should be allocated to each recommendation for trade. The meta policy makes a decision considering both the recommending information of multi-...