Abstracts » Business

Asset price dynamics and infrequent feedback trades

Article Abstract:

This article combines the continuous arrival of information with the infrequency of trades, and investigates the effects on asset price dynamics of positive and negative-feedback trading. Specifically, we model an economy where stocks and bonds are traded by two types of agents: speculators who maximize expected utility, and feedback traders who mechanically respond to price changes and infrequently submit market orders. We show that positive-feedback strategies increase the volatility of stock returns, and the response of stock prices to dividend news. Conversely, the presence of negative-feedback traders makes stock returns less volatile, and prices less responsive to dividends. (Reprinted by permission of the publisher.)

Stocks, Speculation, Stock prices, Assets (Accounting)

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Risk premia and variance bounds

Article Abstract:

If a pricing kernel assigns a premium to a risk variable that differs from the one assigned by the minimum-variance admissible kernel, then the pricing kernel must exhibit more variability than the minimum-variance kernel. Based on this intuition, we derive a variance bound that is more stringent than that of Hansen and Jagannathan (1991). When we apply our bound to the kernel of a representative consumer with power utility, we find that the consumption risk premium increases the severity of the "equity-premium puzzle" of Mehra and Prescott (1985). (Reprinted by permission of the publisher.)

Capital assets, Kernel functions, Degree of freedom

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Predictability and transaction costs: the impact on rebalancing rules and behavior

Article Abstract:

A link is established between realistic transaction costs and predictability concerning a multiperiod investor's rebalancing behavior. Effects of predictability include motivating investors to rebalance more frequently and to spend significantly more on rebalancing.

Financial Forecasting, Statistical Data Included, Research, Methods, Investments, Economic forecasting, Business forecasting, Prediction theory

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