This paper studies how a banking supervisor should design a bank stress test. The test directly provides public information about a bank's stress resilience, which is a noisy indicator of the bank's true capitalization level. Moreover, the test result affects incentives for information...

The 2008 financial crisis heightened concerns about contagion across high leverage investors. Some have suggested that segmenting markets into stand alone units may contribute to financial stability and enhance social welfare. We provide a welfare analysis of segmentation policies in a two...

We analyze information production incentives for traders in financial markets, when firms condition investment decisions on information revealed through stock prices. We show that traders' private value of information about a firm's investment project increases with the ex ante likelihood the...

Leveraged investors may be subject to contagion when sales of repossessed collateral create a downward spiral in fire sales prices, increasing margin requirements and drying up the supply of liquidity. This raises the question whether market integration is desirable when the risk of contagion is...

Leveraged investors may be subject to contagion when sales of repossessed collateral create a downward spiral in fire sales prices, increasing margin requirements and drying up the supply of liquidity. This raises the question whether market integration is desirable when the risk of contagion is...