recognition that technological advance must be understood as an evolutionary process, and recognition that the institutions involved in that process include much more than the simple market institutions on which economists usually focus. Then I turn to the contemporary policy arena that is the focus

The sphere of modern financial economics encompases finance, micro investment theory and much of the economics of uncertainty. As is evident from its influence on other branches of economics including public finance, industrial organization and monetary theory, the boundaries of this sphere are both permeable and flexible. The complex interactions of time and uncertainty guarantee intellectual challenge and intrinsic excitement to the study of financial economics. Indeed, the mathematics of the subject contain some of the most interesting applications of probability and optimization theory. But for all its mathematical refinement, the research has nevertheless had a direct and significant influence on practice. It was not always thus. Thirty years ago, finance theory was little more than a collection of anecdotes, rules of thumb, and manipulations of accounting data with an almost exclusive focus on corporate financial management. There is no need in this meeting of the guild to recount the subsequent evolution from this conceptual potpourri to a rigorous economic

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In this article we test the random walk hypothesis for weekly stock market returns by comparing variance estimators derived from data sampled at different frequencies. The random walk model is strongly rejected for the entire sample period (1962--1985) and for all subperiod for a variety

We present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns. The unpredictability of noise traders ’ beliefs creates a risk in the price of the asset that deters rational

This article presents a simple yet powerful new approach for approximating the value of America11 options by simulation. The kcy to this approach is the use of least squares to estimate the conditional expected payoff to the optionholder from continuation. This makes this approach readily

We model a market populated by two groups of boundedly rational agents: “newswatchers” and “momentum traders.” Each newswatcher observes some private information, but fails to extract other newswatchers’ information from prices. If information diffuses gradually across the population, prices

This paper presents evidence that “social capital ” matters for measurable economic performance, using indicators of trust and civic norms from the World Values Surveys for a sample of 29 market economies. Memberships in formal groups—Putnam’s measure of social capital—is not associated with trust

We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, explains behavior in a wide variety of laboratory games. Included are games where equity is thought to be a factor, such as ultimatum, two

How behavior and institutions are affected by social relations is one of the classic questions of social theory. This paper concerns the extent to which economic action is embedded in structures of social relations, in modern industrial society. Although the usual neoclassical accounts provide