Foreign dividend withholding penalizes accounts without access to offsetting tax credits, such as retirement allocations to international funds. Because equity loans can avoid withholding, the effective rate depends on how their pricing shares the arbitrage. We measure this pricing directly and make three points. First, loans reclaim only some of the withholding, and they incur a per-dividend transactions cost, so both the size and frequency of foreign dividends penalize non-tax U.S. accounts. Second, the effective rate significantly re-weights optimal portfolios of U.S. and Canadian equities, shifting dividend-paying Canadian stocks to Canadians. Finally, U.S. mutual funds allocate less to higher-dividend Canadian stocks. Canadians do not avoid U.S. dividends, which is consistent with the more tax-efficient structure of Canadian retirement investing.

We present a continuous time model of sovereign debt with the possibility to renegotiate once the terms of the contract. Renegotiations consist of a debt reduction or a debt rescheduling. The model provides closed-form solutions for debt values with endogenous default policy and renegotiations terms. Simulations indicate that both reduction and rescheduling deals allow the lender and the sovereign to move away from the wrong side of the debt Laffer curve well before the sovereign is considered highly indebted. The model also allows for a direct comparison of the benefits of debt reduction and debt rescheduling schemes. In most cases debt reduction deals appear most efficient in lowering sovereign default risk, thereby validating the historical move from the Baker plan to the Brady plan. However, debt rescheduling deals imply higher sovereign debt value in two cases: (i) when sovereign exports are very volatile, and (ii) when debt recovery value is particularly high. The model therefore advocates for a case by case approach since debt reductions may not always be the most value enhancing deals in sovereign lending.

I consider a pure exchange economy where the growth rate of aggregate consumption is mean reverting and unobservable. Agents have heterogeneous beliefs which they continuously update. I study the properties of asset prices as they can be measured by an outside observer (objective probability). First, it is shown that under the objective probability, the market price of risk (Sharpe ratio) is larger than the complete information equivalent, if the agents with higher level of expectations about the growth rate also have higher level of conditional variances. I provide an analytical formula for the volatility of the stock price which identifies the respective contributions of information incompleteness and heterogeneity in beliefs. It is shown that the volatility can be higher or lower than in the complete information case, depending on the parametrization. I found that a parametric specification which yields a high level of volatility necessarily implies a negative covariance of the stock return with the interest rate. Finally I discuss why asset returns appear predictable in the objective probability measure when agents rationally update their beliefs by taking into account the observable variations of the dividend.

Price discrepancies, although at odds with mainstream finance, are persistent phenomena in financial markets. These apparent mispricings lead to the presence of "arbitrageurs," who aim to exploit the resulting profit opportunities, but whose role remains controversial. This article investigates the impact of the presence of arbitrageurs in rational financial markets. Arbitrage opportunities between redundant risky assets arise endogenously in an economy populated by rational, heterogeneous investors subject to position limits. An arbitrageur indulging in costless, riskless arbitrage is shown to alleviate the effects of position limits and improve the transfer of risk amongst investors. When the arbitrageur lacks market power, he always takes on the largest arbitrage position possible. When the arbitrageur behaves non-competitively, in that he takes into account the price impact of his trades, he optimally limits the size of his positions due to his decreasing marginal profits. In the case when the arbitrageur is subject to margin requirements and is endowed with capital from outside investors, the size of the arbitrageur's trades and the capital needed to implement these trades are endogenously solved for in equilibrium.