Limits of Arbitrage: The State of the Theory
We survey theoretical developments in the literature on the limits of arbitrage. This literature investigates how costs faced by arbitrageurs can...
The Price Impact of Institutional Herding
In this paper we develop a simple theoretical model to analyze the impact of institutional herding on asset prices. A growing empirical literature has...
Credit Rating and Competition
In principle, credit rating agencies are supposed to be impartial observers that bridge the gap between private information of issuers and the...
Connected Stocks
By connecting stocks through common active mutual fund ownership, we forecast cross-sectional variation in return covariance, controlling for...
On Dividend Restrictions and the Collapse of the Interbank Market
Until recently, financial services regulation remained largely segmented along national lines. The integration of financial markets, however, calls...
Modelling a Housing and Mortgage Crisis
The purpose of this paper is to explore financial instability in this case due to a housing crisis and defaults on mortgages. The model incorporates...
Risk Appetite and Endogenous Risk
Risk is endogenous. Equilibrium risk is the fixed point of the mapping that takes perceived risk to actual risk. When risk-neutral traders operate...
Stronger Risk Controls Lower Risk Evidence from US Bank Holding Companies
In this paper, we investigate whether U.S. bank holding companies (BHCs) with strong and independent risk management functions had lower aggregate...
Technology Adoption Vintage Capital and Asset Prices
We study technology adoption, risk and expected returns using a dynamic equilibrium model with production. The central insight is that optimal...
Fund Flows and Asset Prices: A Baseline Model
We study flows between investment funds and their effects on asset prices in a simple two-period version of Vayanos and Woolley (2010, VW). As in VW...
Attracting Investor Attention through Advertising
This paper provides empirical evidence that managers adjust firm advertising expenditures to influence investor behavior and short-term stock prices...
A Flow-Based Explanation for Return Predictability
This paper proposes and tests an investment-flow based explanation for three empirical findings on return predictability – the persistence of mutual...
A Preferred-Habitat Model of the Term Structure of Interest Rates
We model the term structure of interest rates as resulting from the interaction between investor clienteles with preferences for specific maturities...
Financial Volatility and Economic Activity
Does capital markets uncertainty affect the business cycle? We find that financial volatility predicts 30% of post-war economic activity in the United...
Rents, learning and risk in the financial sector and other innovative industries
We study innovative industries subject to two risks. First, it is uncertain whether the innovation is strong or fragile. Second, it is difficult to...
Regime Switching in Volatilities and Correlation between Stock and Bond markets
This paper studies the correlation and volatilities of the bond and stock markets in a regime- switching bivariate GARCH model. We extend the...
