We analyze the effect of model instability on long-term investors using a time-varying VAR(1) model that we estimate using Bayesian Markov Chain Monte Carlo techniques for state-space specifications. Our model is able to handle time-varying intercepts, time-varying slopes, time-varying volatility, time-varying correlation, the leverage effect and fat tails. We calculate the optimal portfolios o...

This paper examines if markets populated by short-horizon investors tend to have the prices come unhooked from their fundamental values or cash flows. For prices to be near the fundamental value in a market populated with short-horizon investors, the investors must induct backward from future cash flows to the present values. We argue that investors’ ability to backward induct depends criticall...

An asset manager invests the savings of some investors in a portfolio of defaultable bonds. The manager pays the investors coupons at a constant rate and receives management fee proportional to the value of portfolio. She also has the right to walk out of the contract at any time with the net terminal value of the portfolio after the payment of investors’ initial funds, but is not responsible f...

Many institutional and individual investors have an asset allocation policy that calls for investing a specified percentage of the total value of a portfolio in each of several asset classes. To conform with such a policy as market values change requires selling assets that performed relatively well and buying those that performed relatively poorly. Such a strategy is clearly contrarian and can...

This paper explores the long-standing empirical fact of increased trading volume around news releases through the lens of canonical models of gradual information diffusion and differences of opinion. I use a unique dataset of clicks on news by key finance professionals to distinguish between trading among investors who see the news at different times and trading among investors who see the same...

This paper presents a theory, where managers can use the liquidity of securities as a choice variable to screen for “deep pocket” investors, those that have a low likelihood of facing a liquidity shock. We assume that there is information asymmetry about the quality of the manager between the existing investors and the market. The manager then faces a “lemons” problem when he has to raise funds...

Foreign institutional investors (FIIs) play a vital role in the stock market of country and Indian markets are no exception to this. FIIs bring liquidity, buoyancy growth but at same time they also enhance level volatility instability. Over past few years India have shown an impressive growth. The indices making new strides increasing number shares highs. Following India’s story, corporate prof...

the focal objective of this study is to analyze and explore the co-movement of pakistan stock market (kse-100) with the stock market of developed countries (us, uk, canada, australia, germany, japan, france and neither land) which have portfolio investment in pakistan by applying co-integration approach using johansen and juselius multivariate and bi variate co-integration. secondary data of st...

stock selection method in stock exchange is an important issue for investors in such markets. investors will gain benefits more than market average provided that they make logical decisions while selecting stocks. the issue of stock selection in markets like tehran stock exchange (that are not so efficient) is requires more attention of the investors as there is not a suitable equilibrium betwe...