We exploit a novel setting in which the same piece of information affects two sets of firms: one set of firms requires straightforward processing to update prices, while the other set requires more complicated analyses to incorporate the same piece of information into prices. We document substantial return predictability from the set of easy-to-analyze firms to their more complicated peers. Spe...

The authors model trading by foreign and domestic investors in developed-country equity markets. The key assumptions are that (i) both the foreign and domestic investor populations contain investors of different sophistication, and (ii) investor sophistication matters for performance in both public equity and private off-market investments. A quantitative model with these assumptions delivers a...

This paper develops a model of information acquisition and portfolio choice under short-sale constraints. We show that short-sale constraints reduce information acquisition and both the constraints on short-selling and the reduced information acquisition affect investment decisions. The effects of short-sale constraints on investment decisions and asset prices are driven largely by the effects ...

We estimate an empirical model of consumption disasters using new data on consumption for 24 countries over more than 100 years, and study its implications for asset prices. The model allows for partial recoveries after disasters that unfold over multiple years. We find that roughly half of the drop in consumption due to disasters is subsequently reversed. Our model generates a sizable equity p...

For a firm without a readily identifiable brand name, quality reputation may solely reflect the country of origin. In this paper we endogenize country-of-origin reputations and show that these selffulfilling reputations determine not only the average quality of a country’s exports but also the type of products in which a country specializes. Hence, the pattern of international trade can be dete...

We consider whether reputation concerns can discipline the behavior of a long-lived selfinterested agent who has a monopoly over the provision of fiat money. We obtain that when this agent can commit to a choice of money supply, there is a monetary equilibrium where it never overissues. We show, however, that such equilibria do not exist when there is no commitment. This happens because the inc...

We consider an equilibrium model à la Kyle-Back for a defaultable claim issued by a given firm. In such a market the insider observes continuously in time the value of firm, which is unobservable by the market makers. Using the construction of a dynamic Bessel bridge of dimension 3 in [5], we provide the equilibrium price and the optimal insider’s strategy. As in [3], the information released b...

Given a Markovian Brownian martingale Z, we build a process X which is a martingale in its own filtration and satisfies X1 = Z1. We call X a dynamic bridge, because its terminal value Z1 is not known in advance. We compute explicitly its semimartingale decomposition under both its own filtration FX and the filtration FX,Z jointly generated by X and Z. Our construction is heavily based on parabo...

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...

The author empirically tests two aspects of the interaction between financial variables and inventory investment: negative cash flow and finance constraints due to asymmetric information. This is one of the first studies of inventory investment and finance constraints using Canadian data. A sample of Canadian manufacturing firms over the period 1992Q2–1999Q4 is split into subsamples based on ag...