We demonstrate that the process of discovering efficient values in equity trading introduces noise in prices. Noise plays an important role in theoretical microstructure literature, and empirical studies have documented high, U-shaped intra-day volatility that is a manifestation of noise. While...

For a market to be viable, participants must be heterogeneous. Traditional asymmetric information models achieve this by including informed, uninformed, and noise traders. We model heterogeneity differently by relaxing the assumption that identically informed agents form homogeneous...

Liquidity risk is one of the major risks faced by banks in addition to credit risk, market risk and operating risk. In this paper we construct a stylized model of bank management where the asset and liabilities liquidity structure are a key element in determining the bank's exposure to liquidity...

This study examines the relationships between capital, profitability, and risk in U.S. commercial banks versus saving/mortgage banks for the period q1/1995-q4/2006. Following Froot and Stein (1988), we distinguish between these two banking sectors by their loans portfolios: commercial banks...

In recent years market discipline attracted interest as a mechanism to augment or to partially replace government oversight (discipline) of the financial sector, specifically depository institutions. Despite the abundance of research, mostly empirical studies, in the area no formal model has...

In recent years market discipline attracted interest as a mechanism to augment or to partially replace government oversight (discipline) of the financial sector, specifically depository institutions. Despite the abundance of research, mostly empirical studies, in the area no formal model has...

This paper presents a behavioral model of regulators. In our model, the regulator creates red tape - bureaucratic rules and regulations that complicate procedures in an industry. As the enactor of these rules and regulations, the regulator has better knowledge of the ins-and-outs of the system...