Recent research has documented that learning and evolution are capable of generating many well known features in financial times series. We extend the results of LeBaron & Yamamoto (2007) to explore the impact of varying amounts of imitation and agent learning in a simple order driven market. We show that in our framework, imitation is critical to the generation of long memory persistence in ma...

The multitude of explanations for the January effect leaves the reader confused about its primary cause(s): is it tax-loss selling, window dressing, information, bid-ask bounce, or a combination of these causes? The confusion arises, in part, because evidence has generally been presented in support of a particular hypothesis though the same evidence may be consistent with another hypothesis. Fu...

This article constructs an economic model of a rational trader who operates in a market with transaction costs and noise trading. The level of trading affects the rational trader’s marginal cost of transacting; as a result, trading volume (through its effect on marginal cost) is a source of risk. This engenders an equilibrium relationship between returns and volume. The model also provides a si...

Donald Trump’s election was a significant surprise. The reaction of company stock prices to the election reflects shifts in investor expectations about economic growth, taxes, and trade policy. High-beta stocks outperformed, presumably due to strengthened growth expectations. Expectations of significant corporate tax cuts boosted high-tax firms, but hurt firms with significant net operating los...

In this paper, we correct part (b) of Theorem 6 of Grossman and Stiglitz (GS, 1980). We demonstrate that when the private signal tends to be perfect, the market converges to strong-form efficiency, and thus informed and uninformed traders have almost homogeneous beliefs about the stock payoff, but there is still significant net trade, rather than no trade as erroneously shown by GS. We further ...

The anomalies literature in capital markets research in finance and accounting is based (almost) exclusively on average realized returns. In contrast, we construct accountingbased expected returns for dollar-neutral long-short trading strategies formed on a wide array of anomaly variables, including book to market, size, composite issuance, net stock issues, abnormal investment, asset growth, i...

Notwithstanding its widespread use in financial markets and well-documented profitability, technical analysis is still perceived to carry useless information. This paper provides a possible explanation for this puzzle that goes beyond the standard self-fulfilling prophecy argument. If at least some of the asset price fundamentals are not currently observable, the oscillator model is able to inf...

We examine how insiders and firms trade when arbitrage is limited. When arbitrage is costly (proxied by high idiosyncratic risk), insiders and firms earn higher absolute returns on their trades (insider trading, share repurchases, and seasoned equity offerings) in the following year. Furthermore, they initiate their trades following greater past price movements in the preceding year. These resu...

We assess the effect of four short-sale constraints on stock returns in isolation and in combination, in generally falling versus generally rising markets, and considering relative effects for large/mid cap versus small/micro cap firms. We find that across our variety of model specifications, there is substantial evidence that our more fully specified model provides considerable additional expl...

This study evaluates the effectiveness of geographic diversification in reducing housing investment risk. To characterize diversification potential, we estimate spatial correlation and integration among 401 U.S. metropolitan housing markets. The 2000s boom brought a marked uptrend in housing market integration associated with eased residential lending standards and rapid growth in private mortg...