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Consider a trading environment where trading volume affects security prices. We show that when the price impact is time stationary, only linear price-impact functions rule out arbitrage. This is true whether a single asset or a portfolio of assets is traded. When the temporary and permanent effects of trades on prices are independent, only the permanent(More)
Pension Research Council Working Papers are intended to make research findings available to other researchers in preliminary form, to encourage discussion and suggestions for revision before final publication. Opinions are solely those of the authors. This paper is to appear in Pension Design and Structure: New Lessons from Behavioral Finance (forthcoming).(More)
Dispersion in investor beliefs and short-selling constraints can lead to stock market bubbles. This paper argues that firms, unlike investors, can exploit such bubbles by issuing new shares at inflated prices. This lowers the cost of capital and increases real investment. Perhaps surprisingly, large bubbles are not eliminated in equilibrium nor do large(More)
Records of 793,794 employees eligible to participate in 647 defined contribution pension plans are studied. About 71% of them choose to participate in the plans, and of the participants, 12% choose to contribute the maximum allowed, $10,500. The main findings are (other things equal) (1) participation rates, contributions and (most remarkably) savings rates(More)
We investigate the role of out of town second house buyers (so-called " distant speculators ") in bubble formation during the recent housing boom. Distant speculators are likely to have an excessive reliance on capital gains for financial returns and be less informed about local market conditions much like noise traders in many financial models. Using(More)
Investors in 401(k) plans violate basic principles of diversification by holding a significant fraction of their savings in the form of their employers' equity. This paper characterizes investors' active changes to their company stock investment over time by analyzing new inflows and transfers. Investors seem to base active changes on salient information,(More)