(Abstract) This paper studies an overlapping generations model with multiple securities and heterogeneously informed agents. There are two types of multiplicity of equilibria, one due to noisy rational expectations and the other resulting from self-fulfilling prophecies. Under general conditions, there exists an equilibrium in which stock returns are highly volatile and strongly correlated, even if all underlying shocks are small and independent. Other equilibria include a highly volatile, weakly correlated one. When prices are partially revealing, less informed agents rationally behave like trend-followers, while better informed agents follow contrarian strategies. Trade volume has a hump-shaped relation with information precision, and is positively correlated with absolute price changes. Accurate information generally weakens agents' trend-following and contrarian behavior, while it strengthens the properties of a highly volatile, strongly correlated equilibrium. Unlike existing noisy rational expectations equilibrium models, a fully revealing equilibrium is well defined and provides a useful link to the traditional literature.

(Abstract) This paper proposes a model in which liquidity is time-varying and conditionally heteroskedastic. It is demonstrated both theoretically and empirically that liquidity variation plays an important role in the dynamic cross-sectional relation among observable quantities in stock markets. The Kyle-Admati-Pfleiderer framework is extended to a setting with conditionally heteroskedastic information and multiple security trading. When information acquisition is endogenized, liquidity, trading volume, and conditional price-change variance become all stochastic. Their dynamic relation is examined by a simulated vector autoregression (VAR). It finds that liquidity shocks are persistent; a positive volume shock has a negative effect on liquidity in subsequent periods; and liquidity shocks transmit across securities. Using high frequency data, empirical results are provided that are generally consistent with the model's predictions.

(Abstract) This paper investigates whether one can profit from the size, book-to-market, or momentum anomaly, when price-impact costs are taken into account. A non-linear price-impact function is individually estimated for 5,173 stocks to assess the magnitude of trading costs. Compared to constant proportional transaction costs (as typically assumed in the literature), a concave price-impact function tends to assign a higher impact cost to mid-size trades and a lower impact to large-size trades. We implement long-short arbitrage strategies based on each such anomaly, and estimate the maximal fund size possible before excess returns become negative. For all anomalies, the maximal fund sizes are small in order to remain profitable. Markets are therefore bounded-rational: price-impact costs deter agents from exploiting the anomalies.

(Abstract) We find evidence that is consistent with the hypothesis that daily mutual fund flows may be instruments for investor sentiment about the stock market. We use this finding to construct a new index of investor sentiment, and validate this index using data from both the United States and Japan. In both markets exposure to this factor is priced, and in the Japanese case, we document evidence of negative correlations between "Bull" and "Bear" domestic funds. The flows to bear foreign funds in Japan display some evidence of negative correlation to foreign bull and equity funds. They appear to be independent of domestic bull and bear fund flows, suggesting that there is a foreign vs. domestic sentiment factor in Japan that does not appear in the contemporaneous U.S. data. By contrast, U.S. mutual fund investors appear to regard domestic and foreign equity mutual funds as economic complements.