We consider a mean-variance general equilibrium economy where the expected returns for controlling and non-controlling shareholders are different because the former are able to divert a fraction of the profits. We find that when investor protection is poor, asset return correlation affects ownership structure in a positive way. Higher return correlation lowers the benefits of diversification wh...

This paper considers an investor who, at a cost, can acquire a signal about whether an entrepreneurial project will generate positive surplus. The problem for the potentially informed investor is that uninformed investors can compete to provide funding and the informed investor’s contract offer conveys a signal to the entrepreneur about the project’s likely payoffs, affecting the attractiveness...

Riding the South Sea Bubble PETER TEMIN AND HANS-JOACHIM VOTH FORTHCOMING, AER, DECEMBER 2004. ABSTRACT: This paper presents a case study of a well-informed investor in the South Sea bubble. We argue that Hoare's Bank, a fledgling West End London banker, knew that a bubble was in progress and nonetheless invested in the stock; it was profitable to "ride the bubble." Using a unique dataset on da...

We study optimal contracting in a setting that combines experimentation and adverse selection. In our leading example, an entrepreneur (agent) is better informed than the investor (principal) about both the quality the project (risky arm’s distribution) and the entrepreneur’s outside option (payoff of the safe arm). The investor’s profit-maximizing mechanism can be uniquely implemented with a m...

This paper presents a political economy model where there is mutual feedback between investor protection and stock market development. Better investor protection induces companies to issue more equity and thereby leads to a broader stock market. In turn, equity issuance expands the shareholder base and increases support for shareholder protection. This feedback loop can generate multiple equili...

This study examines the impact of investor sentiment on the Taiwan Futures Exchange. The application of the EGB2 model reveals the existence of a clear and significant relationship between sentiment and volatility, particularly in the MSCI, TE and TF futures markets. We find that all sentiment variables have limited forecasting power, and that negative return shocks will ultimately lead to an i...

We derive optimal portfolio weights for an investor who has a strong belief on the distribution of the stock price at a future time. That distribution may be in disagreement with standard equilibrium pricing models, and the investor wants to take advantage of the perceived mispricing and attractive risk premium. We compute numerically optimal weights for models in which the investor believes th...

This paper describes the Distribution Builder, an interactive tool that can elicit information about an investor's preferences. Such information can, in turn, be used when making decisions about investment alternatives over time for that investor. The approach can also be employed when conducting surveys designed to obtain data on the crosssection of investor preferences. Hopefully, such data c...

We construct investor sentiment of UK stock market using the procedure of principal component analysis. Using sentiment-augmented EGARCH component model, we analyse the impacts of sentiment on market excess return, the permanent component of market volatility and the transitory component of market volatility. Bullish sentiment leads to higher market excess return while bearish sentiment leads t...

The contribution of investors to the performance of their portfolio companies within the VC industry has been researched thoroughly. A novel aspect of this paper is that it examines the impact of a syndicated investment using two different measures: (a) the total number of investors; and (b) the total number of different investor types. Using a novel dataset and while controlling for the endoge...