1. Motivating Example In several earlier posts (e.g., here and here) I've talked about the two well-known information-based asset-pricing models, Grossman and Stiglitz (1980) and Kyle (1985). But, there are lots of situations that don't really … [Continue reading]

# Screening Using False-Discovery Rates

1. Motivating Example Jegadeesh and Titman (1993) show that, if you rank stocks according to their returns over the previous $12$ months, then the past winners will outperform the past losers by $1.5{\scriptstyle \%}$ per month over the next $3$ … [Continue reading]

# Persistence and Dispersion in the Housing Market

1. Motivation House-price growth is persistent. When you regress current house-price growth on lagged house-price growth using monthly Zip-code level data, \begin{align} \Delta \bar{p}_{z,t} &= \alpha_z + \beta_z \cdot \Delta \bar{p}_{z,t-1} + … [Continue reading]

# Multiscale Noisy-Rational-Expectations Equilibrium

1. Motivation Evolutionarily Slow. In modern financial markets, people simultaneously trade the exact same assets on vastly different timescales. For example, a Jegadeesh and Titman (1993)-style momentum portfolio turns over half its holdings once … [Continue reading]

# Notes on Information Aversion

1. Motivation In spite of how they are modeled in Merton (1971), traders don't pay attention to their portfolio every second of every day. What's more, this lumpy rebalancing behavior has important asset-pricing implications. If traders aren't … [Continue reading]