1. Motivation This note develops an information-based asset pricing model based on Tirole (2009) where thinking through market contingencies is costly and fear of missing an important detail restrains trading behavior. For example, think about a … [Continue reading]
1. Introduction Fama and French (1993) found that both a firm's size and its book-to-market ratios are highly correlated with its average excess return as illustrated in Figure 1 below. For instance, the center panel says that stocks with low … [Continue reading]
1. Introduction This post reviews the analysis in Campbell, Lettau, Malkiel, and Xu (2001) who find that firm level volatility has been rising over the period from July 1962 to December 1997. I've posted the code I used here. What does this mean? … [Continue reading]
1. Introduction One of the most astonishing things about financial markets is that there is interesting economics operating at so many different scales. Yet, no one would ever guess this fact by looking at standard asset pricing theory. To … [Continue reading]
1. Introduction Where do macroeconomic fluctuations come from? Does common variation in firms' output necessarily come from a single source? In this post, I work through a model which suggests that productivity "factors" might be the result of … [Continue reading]