The present paper sets out to underline passive portfolio management on the Romanian capital market starting from the Capital Asset Pricing Model (CAPM) derived from the efficient market hypothesis, with no assumptions about the beliefs or preferences of investors. The efficient market hypothesis says that a speculator with limited resources cannot beat a particular index by a substantial facto...

A financial market model where agents trade using realistic combinations of buy-andhold strategies is considered. Minimal assumptions are made on the asset-price process — in particular, the semimartingale property is not assumed. Via a natural assumption of limited opportunities for unlimited resulting wealth from trading, coined the “No Unbounded Profit with Bounded Risk” condition, we establ...

This paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis. Aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation. While ‘moderate’ participation rates strengthen the role of monetary policy, lo...

The fundamental equation of asset pricing states that the expected timeand risk-adjusted cumulative return on any asset equals one at all horizons. This paper shows that for a typical asset, the realized timeand risk-adjusted cumulative return tends to zero with probability one. Just two assumptions are required: limited liability and no arbitrage. This apparent paradox is resolved by a further...

capital asset pricing model (capm) has been among the common models to estimate expected returns rate. since the linearity assumption is considered in the standard version of the capital asset pricing model, estimating beta in nonlinear setting will be inconsistent and bias-oriented. therefore, this study tries to evaluate predictive power of nonlinear capital asset pricing model as well as sta...

Motivated by experimental and empirical evidence, I develop a theoretical framework to study how reference-points – such as a status quo, endowment or default option – can distort the way an individual perceives and responds to ambiguity. I use this framework to characterize various models of reference-dependent ambiguity, and provide behavioral foundations for comparative ambiguity attitudes a...

After the collapse of the housing bubble in 2007, severe fire sales of assets in the financial sector are accompanied by a rise in the volatility of asset returns in the non-financial firms. To account for their co-movements, I develop a model that highlights the interaction between the financial health of the banking sector and the volatility of asset returns. The novel feature of the model is...

Using estimates of earnings functions in Ghana, this paper examines patterns of labor market segmentation with regard to formal and informal employment. Persistent earnings differentials are used as indicators of limited mobility across segments of the employed labor force. We find evidence of labor market segmentation between formal and informal employment and between different categories of i...

We propose a unified model of limited market integration, asset-price determination, leveraging, and contagion. Investors and firms are located on a circle, and access to markets involves participation costs that increase with distance. Due to a complementarity between participation and leverage decisions, the market equilibrium may exhibit diverse leverage and participation choices across inve...

In this paper, an artificial financial market based on heterogeneous agents is presented. The proposed market is composed of traders with limited amount of cash, one traded asset and a centralized mechanism, the market maker, matching buy and sell orders. The price formation process is given by the intersection of the demand and the supply curve. The artificial financial market has been impleme...