Our objective in this article is to study analytically the effect of borrowing constraints on asset returns in an economy where agents are heterogenous with respect to their risk aversion. We use asymptotic analysis to characterize the equilibrium in a general equilibrium exchange economy with an arbitrary number of agents who differ in their risk aversion and face limits on borrowing. We find ...

This paper examines portfolio choice, trading behavior, and realized rates of return following a panel of nearly seven thousand 401(k) retirement accounts during the April 1994-August 1998 time period. The distribution of equity allocations in the panel is strongly bi-modal: 48% of the average annual equity allocations in the panel are zero, while 22% of the allocations are 100%. The overall av...

We test whether the well-documented high returns of private equity sponsors result from wealth transfers from other financial claimants and counterparties, or from a focus on short-term profits at the expense of long-term value. Bondholders and buyers of private equity portfolio companies represent the two potential sources of wealth transfers. Yet, we find that public companies benefit when th...

Hedge funds have gained popularity for increasing investment returns. We focus on the role of this asset category for longterm investors, with attention to rebalancing a portfolio of diversified assets. An investor must seek out securities with low correlations to traditional assets to maximize asset growth. Current hedge fund returns, as measured by average performance, show dependencies with ...

Correlations between international equity market returns tend to increase in highly volatile bear markets, which has led some to doubt the benefits of international diversification. This article solves the dynamic portfolio choice problem of a US investor faced with a time-varying investment opportunity set modeled using a regime-switching process which may be characterized by correlations and ...

Stock return is something that expected to be obtained by all investors who invest in the capital market. Financial stock returns will occur if company's profits increase which makes company distribute dividends. This study aims test and obtain empirical evidence of effect Return on Equity, Debt equity ratio, Dividend Yield consumer goods companies listed Indonesia Exchange.The research populat...

Building on the theoretical asset pricing literature, we examine the role of market risk and the size, book-to-market (BTM), and volatility anomalies in the cross-section of unlevered equity returns. Consistent with the theory, the unlevered market beta helps explain the cross-section of unlevered equity returns even when we control for the size and BTM factors. The value premium and the volati...

Existing studies using low-frequency data show that macroeconomic shocks contribute little to international stock market covariation. Those studies, however, do not account for the presence of asymmetric information, where sophisticated investors generate private information about the fundamentals that drive returns in many countries. In this paper, the authors use a new microstructure data set...

We develop a market-wide illiquidity risk factor based on run lengths and find that it is priced using standard asset-pricing specifications. Our theoretical framework of equity returns derives the result that average run lengths are related to common measures of liquidity such as trading volume and trade price-impact. This relationship holds irrespective of the observation frequency in the com...

Recent work documents that better legal institutions are associated with broader equity markets. We investigate whether differences in legal institutions also help explain the international cross-section of expected stock returns. Three main regularities emerge. First, total stock market returns are positively correlated with overall measures of the quality of institutions, such as judicial eff...