In this paper, we propose a measure of individual investor sentiment that is derived from the market for bank-issued warrants. Due to a unique warrant transaction data set from a large discount broker we are able to calculate a daily sentiment measure and test whether individual investor sentiment is related to daily stock returns by using vector autoregressive models and Granger causality test...

In the continuous time-Merton-model the instantaneous stock proportions are inversely proportional to the investor´s local relative risk aversion γ. This paper analyses the conditions under which a HARA-investor can use this 1/γ-rule to approximate her optimal portfolio in a finite time setting without material effects on the certainty equivalent of the portfolio payoff. The approximation is of...

External finance is critical for less established entrepreneurs, so poor investor protection can hinder competition. We model how lobbying for weaker investor protection reduces access to finance and decreases competition in countries where politicians are less accountable to voters. Weaker accountability thus produces a smaller economic elite. As empirical support for this result, in a broad p...

We study the strategic interaction between fundamental informed trading and order-flow informed trading. In a standard two-period Kyle (1985) model, we add a “back-runner” who observes, ex post and potentially with noise, the order flow of the fundamental informed investor in the first period. Learning from orderflow information, the back-runner competes with the fundamental investor in the sec...

In this paper, we propose a measure of individual investor sentiment that is derived from the market for bank-issued warrants. Due to a unique warrant transaction data set from a large discount broker we are able to calculate a daily sentiment measure and test whether individual investor sentiment is related to daily stock returns by using vector autoregressive models and Granger causality test...

Using data from a major discount brokerage house, we examine the effect of individual investor trading on stock returns. We show that the buy-sell imbalance in individual investors’ trades contains a systematic component that is uncorrelated with overall market movements. Using this common component as a measure of individual investor sentiment, we show that it is weakly correlated with standar...

This paper analyzes the portfolio decision of an investor facing the threat of illiquidity. In a continuous-time setting, the efficiency loss due to illiquidity is addressed and quantified. For a logarithmic investor, we solve the portfolio problem explicitly. We show that the efficiency loss for a logarithmic investor with 30 years until the investment horizon is a significant 22.7% of current...

This study is the first to simultaneously analyze the relation between aggregate stock market returns and cash flows of the various investor groups that constitute the entire stock market in the United States. We examine the relation between investor flows and stock market returns over a long time period from 1952 to 2004, and also examine the relation between investor flows and longer-term sto...

The fee structure used to compensate investment advisers is central to the study of fund design, and affects investor welfare in at least three ways: (i) by influencing the portfolio-selection incentives of the adviser, (ii) by affecting risk-sharing between adviser and investor, and (iii) through its use as a signal of quality by superior investment advisers. In this paper, we describe a model...

This paper presents an extension of the Fisher Separation Theorem applicable in multiperiod, "partially complete" markets where some, but not all, risks may be hedged by trading securities. Given necessary and sufficient conditions on preferences, an investor contemplating investments in productive opportunities (or projects) and financial securities can decompose this problem into production a...