The Arrow-Debreu intertemporal general equilibrium paradigm is typically interpreted as suggesting that contingent claims markets need not reopen as time passes and uncertainty resolves. We show that this property, if satisfied, has strong implications for the structure of agents' preferences and for the updating of probabilistic beliefs.
This article focuses on the formulation of a method to solve the joint consumption-portfolio problem. The formulation presented allows the author to distinguish between risk preferences and time preferences when determining optimal consumption and asset demand. Classic Fisherian two-period diagrammatics are generalized. Period-two risk preferences are assumed to be independent of first-period consumption. The set of consumption-portfolio optima is expanded consistently with utility maximization.
This paper assesses the ability of markets to convey information about firms to investors. The present system of disclosure rules has been restricted to historical data. Recently there have been proposals to bring predictive data—in particular, earnings forecasts—under the scope of a disclosure rule. Forecasts of future earnings are, at present, being provided by many corporate managements.
This paper is presented within the context of two streams of research which can be identified in the current literature of empirical accounting research. Both of these research areas deal with changes in accounting methods. The first deals with the motivation for changes in accounting methods, and the second area, attempts are made to discover the consequences of accounting changes in terms of the reaction of capital markets to the output of the accounting process.
This paper deals primarily with forecast disclosure rules, a topic that has attracted the attention of both the Securities and Exchange Commission and the accounting profession. We consider two fundamental and related aspects of such a rule: 1) the extent to which the type of information to be disclosed conveys information pertinent to valuing firms; and 2) the extent to which a rule requiring public forecast disclosure is consistent with Pareto optimal allocations of resources.
Bank balance sheet lending is commonly viewed as the predominant form of lending. We document and study two margins of adjustment that are usually absent from this view using microdata in the $10 trillion U.S. residential mortgage market. We first document the limits of the shadow bank substitution margin: shadow banks substitute for traditional “deposit-taking” banks in loans which are easily sold, but are limited from activities requiring on-balance-sheet financing.
In this paper, I estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007 to 2009 financial crisis. Because lenders rely on private information when deciding which relationship to end, borrowers looking for a new lender are adversely selected. I show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships.
To get back in balance, allocators have a number of options — everything from using secondary markets and making valuations more realistic to doing nothing.