Asset prices, asset trading, and margin requirements and an essay on the political economy of reforms

Chapter 1: "Asset prices and asset trading". Two robust features of financial markets data are: (1) the contemporaneous positive correlation between stock trading volume and the magnitude of stock price changes; (2) the persistency of stock return volatility. I show how these two empirical regularities can emerge endogenously in a general equilibrium model where two types of investors, heterogeneous in their degree of risk aversion but not in their elasticity of substitution, trade in stock and bonds to share aggregate risk. Slow movements of the distribution of wealth over time give rise to the positive autocorrelation of stock return volatility. The size of wealth redistribution among investors gives rise to changes in stock trading volume and stock return volatility over time.;Chapter 2: "Asset prices and margin requirements in general equilibrium". I introduce margin requirements on investors in the model of chapter 1 to study their effect on asset prices, trading volumes and investors' welfare. On impact, margin requirements decrease the riskless rate, increase its volatility, and increase stock trading volume, while they have little effect on stock returns. More risk averse investors are always worse-off in the economy with margin requirements, while less risk averse ones might be better-off in some states of the world. Small changes in margin requirements can change the identity of the investor who dominates the long-run distribution of wealth.;Chapter 3: "Reform implementation under sequential bargaining" . Understanding why efficiency-enhancing reforms are not implemented is a key issue in political economy. To answer this question one has to explain why payments of compensations to losers of reforms are not carried out when they are feasible. We construct a signaling model where losers from reforms have private information about their evaluation of the status quo and compensations are distortionary. Losers can choose to organize in an interest group to block a reform. When reforms are sequential and governments differ according to their willingness to make transfers, current compensations are used to discourage the formation of interest groups in the future. This incentive results in a bias against the implementation of reforms.