We demonstrate that limited participation can arise endogenously in the presence of model uncertainty and heterogeneous uncertainty-averse investors. When uncertainty dispersion among investors is small, full participation prevails in equilibrium. Equity premium is related to the average uncertainty among investors and a conglomerate trades at a price equal to the sum of its single-segment components. When uncertainty dispersion is large, investors with high uncertainty choose not to participate in the stock market, resulting in limited market participation. When limited participation occurs, participation rate and equity premium can decrease in uncertainty dispersion and a conglomerate trades at a discount.

This study examines online multi-unit, discriminatory, ascending auctions of certificates of deposit. We find evidence suggesting that the most aggressive bids are likely to occur at the beginning and the end of the auctions. The opening of the auction serves an important role in price discovery. In addition, in multi-unit auctions last-minute bidding is a conditional strategy, and is used only when bidding is intense. Furthermore, we provide evidence suggesting that revenues are increasing in the depth of the market, in the concentration of early bids, and in bank participation relative to the size of the principal.

In this paper we analyze the interrelatedness of security analysis and market-making activities. Our results indicate that there exists a bidirectional and positive relation between analyst following and the number of market makers. Using detailed data on analyst and dealer affiliations, we also find that dealers are more likely to make markets in stocks that are tracked by analysts who are affiliated with the same company. Similarly, analysts follow and issue earnings forecasts more proactively for stocks that are handled by affiliated market makers. We interpret these results as evidence that analysts and market makers work as a team to benefit the company. We discuss a possible conflict of interest between investors and brokerage firms that arises from this collaborative endeavor between analysts and dealers.

Consider a two-player discounted infinitely repeated game. A player's belief is a probability distribution over the opponent's repeated game strategies. This paper shows that, for a large class of repeated games, there are no beliefs that satisfy three properties: learnability, a diversity of belief condition called CSP, and consistency. Loosely, if players learn to forecast the path of play whenever each plays a strategy that the other anticipates (in the sense of being in the support of that player's belief) and if the sets of anticipated strategies are sufficiently rich, then neither anticipates any of his opponent's best responses. This generalizes results in Nachbar (1997).

We examine the optimal dynamic portfolio decisions for investors who acquire housing services from either renting or owning a house. Our results show that when indifferent between owning and renting, investors owning a house hold a lower equity proportion in their net worth (bonds, stocks, and home equity), reflecting the substitution effect, yet hold a higher equity proportion in their liquid portfolios (bonds and stocks), reflecting the diversification effect. Furthermore, following the suboptimal policy of always renting leads investors to overweigh in stocks, while following the suboptimal policy of always owning a house causes investors to underweigh in stocks.

We model externality abatement as an implementation problem. A social planner would like to ensure efficient behaviour among a group of agents whose actions are sources of externalities. However, the planner has limited information about the agents' preferences, and is unable to distinguish individual agents except through their action choices. We prove that if a concavity condition on aggregate payoffs is satisfied, the planner can guarantee that efficient behaviour is globally stable under a wide range of behaviour adjustment processes by administering a variable pricing scheme. Through a series of applications, we show that the concavity condition is naturally satisfied in settings involving negative externalities. We conclude by contrasting the performance of the pricing mechanism with that of a mechanism based on direct revelation and announcement dependent forcing contracts.