A dynamic model of grain storage supports and elaborates the McCloskey/Nash empirical findings about grain price movements and interest rates. In particular, their finding of a negative time derivative of the growth rate of grain prices is explained, and a means of econometrically distinguishing the interest rate from storage rents is stated.

In practice, heterogeneously informed speculators combine private information about multiple stocks with information in prices, taking into account how their trades influence the inferences of other speculators via prices. We show how this speculation causes prices to be more correlated than asset fundamentals, raising price volatility. The covariance structure of asset fundamentals drives that of prices, while the covariance structure of liquidity trade drives that of order flows. We characterize how speculator profits vary with the distributions of information and liquidity trade across assets and speculators, and relate the cross‐asset factor structure of order flows to that of returns.

We analyze how the presence of financial markets affects the optimal exercise of real options for a risk averse agent. Extending the results of Shackleton and Sodal (2005), we characterize the optimal exercise rule in terms of a benchmark portfolio, even for the case of an incomplete market, facilitating the minimal martingale measure. We unambiguously characterize the effect of idiosyncratic risk on the speed of exercise of the option. We further show that systematic risk can accelerate execution and reduce the value of a call-type option, in contrast with the standard view that both value and execution threshold are increasing in volatility.