Speculators can discover whether a signal is true or false by processing it but this takes time. Hence they face a trade-off between trading fast on a signal (i.e., before processing it), at the risk of trading on a false news, or trading after processing the signal, at the risk that prices...

In order to analyse the interest rate transmission mechanism, we study daily Euro-rates term structure for the US, Germany, and the UK between 1983 and 1997. We estimate multivariate VECM-GARCH models, which takes into account most of the usual feaures of financial data (non-stationarity,...

We present a simple theory of business-cycle movements of option prices and volumes. This theory relies on time-varying heterogeneity between agents in their demand for insurance against aggregate risk. Formally, we build an infinite-horizon model where agents face an aggregate risk, but also...

The purpose of this paper is to propose discrete-time term structure models where the historical dynamics of the factor (xt) is given, in the univariate case, by a Gaussian AR(p) process, and, in the multivariate case, by a Gaussian n-dimensional VAR(p) process. The factor (xt) is considered as...

We consider the problems of derivative pricing and inference when the stochastic discount factor has an exponential-affine form and the geometric return of the underlying asset has a dynamics characterized by a mixture of conditionally Normal processes. We consider both the static case in which...

We study the liquidity allocation among European banks around the Lehman Brothers’ insolvency using a novel dataset of all interbank loans settled via the Eurosystem’s payment system TARGET2. Following the Lehman insolvency, lenders in the overnight segment become sensitive to counterparty...

This study assesses the reaction of stock markets, when Sovereign Wealth Funds (SWFs) announce that they have taken a stake in a listed company. It adds useful empirical results to the debate on the effect of SWFs on financial markets, which remains so far largely reliant on guess work. We...

I model the dynamics of price adjustments to news arrival in limit order markets when investors have limited attention. Because of limited attention, investors monitor news arrival imperfectly. Consequently prices reflect news with delay. This delay shrinks when investors' attention capacity...

It has been argued in the literature that emergency liquidity injections should be conducted preferably in the form of open market operations. As we show in the present paper, this is not necessarily the case when liquidity may be alternatively used for speculative purposes during the crisis. In...