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Statistical discrimination explains that two ex ante identical groups can have two different qualifications due to asymmetric information and self-fulfilling equilibria. In the typical statistical discrimination models, however, there is no interaction between groups. This paper offers a statistical discrimination model with a continuous signaling in which two groups compete for employment. We compare exclusive equilibria, in which no worker in one group makes a human capital investment, with symmetric equilibria, and show that discrimination as well as non-discrimination can be Pareto optimal under a certain environment.

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We estimate latent factor models of liquidity and volatility. Common liquidity and volatility factors are extracted using multiple liquidity and volatility measures. Additionally, a latent factor is extracted by aggregating across both liquidity and volatility resulting in what we call the common uncertainty factor. The underlying uncertainty factor is correlated with the individual and the common liquidity and volatility factors as well as returns. We find that the underlying uncertainty risk factor is significantly priced in the cross section of expected returns, while the risks associated solely with liquidity and volatility are not suggesting that liquidity risk and volatility risk in stocks are related and should not be considered separately.

Abstract | PDF (182 kilobytes)

This paper shows that in an economy with open capital markets, there exists a force toward unbalanced growth driven by intertemporal substitution of consumption and trade imbalance. We construct a two-sector Ramsey economy composed of a technologically progressive tradable sector and a technologically stagnant nontradable sector. We show that a capital account liberalization in the economy will drive the long-run share of the tradable sector toward one or zero, depending on whether the autarky interest rate is higher or lower than the world interest rate. The difference between the autarky interest rate and the world interest rate ultimately dictates the direction of structural transformation regardless of the progression of the Baumol's disease that pushes up the relative price and the share of nontradables. Because the autarky interest rate is increasing in the rate of technological progress, our result suggests that cross-country differences in the rate of technological progress may be an important factor in accounting for the diverse patterns of structural change in a financially integrated world.