This paper presents a consumption-based general equilibrium model for valuing foreign exchange contingent claims. The model identifies a novel economic mechanism by exploiting highly but imperfectly shared consumption disaster with variable intensities which are the concerns to the representative investor under recursive utility. When applied to the data, the model simultaneously replicates (i) the moderate option-implied volatilities; (ii) substantial variations in the risk-neutral skewness of currency returns; (iii) the uncovered interest rate parity puzzle; and (iv) the first two moments of carry trade returns. Furthermore, the model rationalizes salient features of the aggregate stock, government bonds, and equity index options.

This paper proposes a general equilibrium model that explains the pricing of the S&P 500 index options. The central ingredients are a peso component in the consumption growth rate and the time-varying risk aversion induced by habit formation which amplifies consumption shocks. The amplifying effect generates the excess volatility and a large jump-risk premium which combine to produce a pronounced volatility smirk for index options. The time-varying volatility and jump-risk premiums explain the observed state-dependent smirk patterns. Besides volatility smirks, the model has a variety of other implications which are broadly consistent with the aggregate stock and option market data.

I construct an informationally robust auction to sell a common‐value good. I examine the revenue guarantee of an auction over all information structures of bidders and all equilibria. As the number of bidders gets large, the revenue guarantee of my auction converges to the full surplus, regardless of how information changes as more bidders are added. My auction also maximizes the revenue guarantee when there is a single bidder.

This article studies the impact of increasing trading frequency in financial markets on allocative efficiency. We build and solve a dynamic model of sequential double auctions in which traders trade strategically with demand schedules. Trading needs are generated by time-varying private information about the asset value and private values for owning the asset, as well as quadratic inventory costs. We characterize a linear equilibrium with stationary strategies and its efficiency properties in closed form. Frequent trading (more double auctions per unit of time) allows more immediate asset reallocation after new information arrives, at the cost of a lower volume of beneficial trades in each double auction. Under stated conditions, the trading frequency that maximizes allocative efficiency coincides with the information arrival frequency for scheduled information releases, but can far exceed the information arrival frequency if new information arrives stochastically. A simple calibration of the model suggests that a moderate market slowdown to the level of seconds or minutes per double auction can improve allocative efficiency for assets with relatively narrow investor participation and relatively infrequent news, such as small- and micro-cap stocks.

T HE theoretical role of technology in economic growth is no mystery. It provides new machines and processes (improved capital quality) that raise output relative to input, or productivity. Yet for several reasons, once it comes to pursuing this truth by observation, hypothesis, and testing, every manner of obstacle seems to appear. One may be told that technology per se is rarely susceptible of measurement, that productivity increases can be attributed to many causes, impossible to untangle, or that the precise link between embodied technological change and productivity is too hazy. Such doubts are often justified. At times, however, they may unduly discourage those whose curiosity is not satisfied by aggregate production functions, and who would prefer to investigate more closely some particular reasons for productivity increases. To be clear on this point, technological innovation frequently is difficult to represent quantitatively. Output per unit of input often does rise for non-technological reasons (economies of scale, changes in rates of utilization of capacity, or optimal factor combinations), but there must be important cases where the reverse is true. One such case seems to be electrification of manufacturing industries. Here the rate of technical change can be reasonably well measured in terms of horsepower capacity of power equipment and consumption of power (work output). Furthermore, this revolution in the application of power can be viewed against the background of clear, known changes in manufacturing productivity changes which remain mostly unexplained. Specifically, it might be expected that there would be a relationship between electrification and reduced costs of production.' More broadly, the case of electrification might illustrate how the quantitative link between technological change and productivity can be developed. To this end, what follows (section I) traces some suggestive findings regarding the rise of electric power and changes in productivity in American manufacturing, and (section II) attempts to construct a theoretical framework for measuring the impact of electrical technology on factor costs. It is hoped that section II will help shed more light upon the broader question mentioned above, by providing procedures that could be adapted to a wide range of technologyproductivity cases.

Using U.S. census survey data on CEOs’ residence in their formative years, I document a negative relation between CEOs’ endowed family wealth and managerial performance. Consistent with the view that CEOs born into low-income families face higher entry barriers but may possess greater levels of ability that enable them to become CEOs, I find that CEOs born into less privileged families outperform those from higher-wealth families. The outperformance of CEOs from less wealthy families is not driven by risk taking or omitted variables. Overall, my results suggest that CEOs’ social endowment provides a useful signal for their managerial ability.

In a natural experiment among former colonies between 1970 and 1999, weak institutions reflected in high settler mortality and French legal origin often increase the likelihood and intensity of local currency and real crises (i.e., those resulting in a drop in real output) amid six global crises. The effects of institutions on crises are often mediated through macroeconomic policies, but they are often not primary channels. Persistent institutions (i.e., those reflected in the legal origins and settler mortality) predict the occurrence and intensity of crises better than time-varying institutions do.

Most extant structural credit risk models underestimate credit spreads—a shortcoming known as the credit spread puzzle. We consider a model with priced stochastic asset risk that is able to fit medium‐ to long‐term spreads. The model, augmented by jumps to help explain short‐term spreads, is estimated on firm‐level data and identifies significant asset variance risk premia. An important feature of the model is the significant time variation in risk premia induced by the uncertainty about asset risk. Various extensions are considered, among them optimal leverage and endogenous default.