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Green and Hollifield (1992) argue that the presence of a dominant factor is why we observe extreme negative weights in mean-variance-efficient portfolios constructed using sample moments. In that case imposing no-shortsale constraints should hurt whereas empirical evidence is often to the contrary. We reconcile this apparent contradiction. We explain why(More)
Understanding volatility in emerging capital markets is important for determining the cost of capital and for evaluating direct investment and asset allocation decisions. We provide an approach that allows the relative importance of world and local information to change through time in both the expected returns and conditional variance processes. Our(More)
We propose a dynamic equilibrium model of a multi-asset market with stochastic volatility and transaction costs. Our key assumption is that investors are fund managers, subject to withdrawals when fund performance falls below a threshold. This generates a preference for liquidity that is time-varying and increasing with volatility. We show that during(More)
A 'cross-sectional regression test' (CSRT) of the CAPM is developed and its connection to the Hotelling T* test of multivariate statistical analysis is explored. Algebraic relations between the CSRT, the likelihood ratio test and the Lagrange multiplier test are derived and a useful small-sample bound on the distribution function of the CSRT is obtained. An(More)
This paper presents a Schelling-type checkerboard model of residential segregation formulated as a spatial game. It shows that although every agent prefers to live in a mixed-race neighborhood, complete segregation is observed almost all of the time. A concept of tipping is rigorously defined, which is crucial for understanding the dynamics of segregation.(More)
This paper shows that the existence of managerial ability, combined with the labor contract prevalent in the industry, implies that the closed-end fund discount should exhibit many of the primary features documented in the literature. We evaluate the model's ability to match the quantitative features of the data, and find that it does well, although there(More)
We examine how price impact in the underlying asset market affects the repli-cation of a European contingent claim. We obtain a generalized Black-Scholes pricing PDE and establish the existence and uniqueness of a classical solution to this PDE. We show that unlike the case with transaction costs, replication in the presence of price impact is always(More)
The ABO histo-blood group, the critical determinant of transfusion incompatibility, was the first genetic polymorphism discovered in humans. Remarkably, ABO antigens are also polymorphic in many other primates, with the same two amino acid changes responsible for A and B specificity in all species sequenced to date. Whether this recurrence of A and B(More)