Deformation theory of the Chow group of zero-cycles

We study the deformations of the Chow group of zero-cycles of the special fibre of a smooth scheme over a henselian discrete valuation ring. Our main tools are Bloch's formula and differential forms. As a corollary we get an algebraization theorem for thickened zero-cycles previously obtained using idelic techniques. In the course of the proof we develop moving lemmata and Lefschetz theorems for cohomology groups with coefficients in differential forms.Comment: 19 pages, published versio

The Power Law and Dividend Yields

Recent research suggests that the power law is one of the most universal laws in nature and it also seems to work quite fine in economics and finance. In this paper we show that the power law explains extremely well the relationship between the value of broad-based market indices and their dividends. We also show that this relationship is consistent with declining relative risk aversion of the representative investor. Hence, the power law has a solid economic foundation. --Power law,stock prices,dividends,co-integration

Why Are Asset Returns Predictable?

Starting from an information process governed by a geometric Brownian motion we show that asset returns are predictable if the elasticity of the pricing kernel is not constant. Declining [Increasing] elasticity of the pricing kernel leads to mean reversion and negatively autocorrelated asset returns [mean aversion and positively autocorrelated asset returns]. Under nonconstant elasticity of the pricing kernel financial ratios as the price-earnings ratio have predictive power for future asset returns. In addition, it is shown that asset prices will be governed by a time-homogeneous stochastic differential equation only under the constant elasticity pricing kernel. Hence, usually asset price processes do not satisfy the assumptions needed for empirical estimation. --Pricing kernel,Diffusion processes,Stationarity,Predictability of asset returns,Autocorrelation

How do investors' expectations drive asset prices?

Asset price processes are completely described by information processes and investors´ preferences. In this paper we derive the relationship between the process of investors´ expectations of the terminal stock price and asset prices in a general continous time pricing kernel framework. To derive the asset price process we make use of the modern technique of forward-backward stochastic differential equations. With this approach it is possible to show the driving factors for stochastic volatility of asset prices and to give theoretical arguments for empirically well documented facts. We show that stylized facts that look at first hand like financial market anomalies may be explained by an information process with stochastic volatility. --backward stochastik differential equtations,information processes,pricing kernel

Return Predictability and Stock Market Crashes in a Simple Rational Expectations Model¤

This paper presents a simple rational expectations model of intertemporal asset pricing. It shows that state-independent heterogeneous risk aversion of investors is likely to generate declining aggregate relative risk aversion. This leads to predictability of asset returns and high and persistent volatility. Stock market crashes may be observed if relative risk aversion differs strongly across investors. Then aggregate relative risk aversion may sharply increase given a small impairment in fundamentals so that asset prices may strongly decline. Changes in aggregate relative risk aversion may also lead to resistance and support levels as used in technical analysis. For numerical illustration we propose an analytical asset price formula.Aggregate relative risk aversion, Equilibrium asset price processes, Excess Volatility, Return predictability, Stock market crashes