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Limits of Arbitrage: The State of the Theory

Gromb, Denis; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2010

We survey theoretical developments in the literature on the limits of arbitrage. This literature investigates how costs faced by arbitrageurs can prevent them from eliminating mispricings and providing liquidity to other investors. Research in this area is currently evolving into a broader...

Persistent link: https://www.econbiz.de/10008530340

A Search-Based Theory of the On-the-Run Phenomenon

Vayanos, Dimitri; Weill, Pierre-Olivier - C.E.P.R. Discussion Papers - 2006

We propose a model in which assets with identical cash flows can trade at different prices. Infinitely-lived agents can establish long positions in a search spot market, or short positions by first borrowing an asset in a search repo market. We show that short-sellers can endogenously...

Persistent link: https://www.econbiz.de/10005504616

Incentives Versus Sorting in Tournaments: Evidence from a Field Experiment

Leuven, Edwin; Oosterbeek, Hessel; Sonnemans, Joep; van … - C.E.P.R. Discussion Papers - 2008

A vast body of empirical studies lends support to the incentive effects of rank-order tournaments. Evidence comes from … tournaments may bias these non-experimental studies, whereas short task duration or lack of distracters may limit the external … where students selected themselves into tournaments with different prizes. Within each tournament the best performing …

Persistent link: https://www.econbiz.de/10005136509

Public and Private Insurance with Costly Transactions

Bertola, Giuseppe; Koeniger, Winfried - C.E.P.R. Discussion Papers - 2010

We characterize how public insurance schemes are constrained by hidden financial transactions. When non-exclusive private insurance entails increasing unit transaction costs, public transfers are only partly offset by hidden private transactions, and can influence consumption allocation. We show...

Persistent link: https://www.econbiz.de/10008682880

A Critical Evaluation of Bail-in as a Bank Recapitalisation Mechanism

Avgouleas, Emilios; Goodhart, Charles A - C.E.P.R. Discussion Papers - 2014

Many of the world’s developed economies have introduced, or are planning to introduce, bank bail-in regimes. Both the planned EU resolution regime and the European Stability Mechanism Treaty involve the participation of bank creditors in bearing the costs of bank recapitalization via the...

Persistent link: https://www.econbiz.de/10011083962

Feeling the blues. Moral hazard and debt dilution in Eurobonds before 1914

Esteves, Rui; Tuncer, Ali Coskun - C.E.P.R. Discussion Papers - 2014

Debt mutualisation through Eurobonds has been proposed as a solution to the Euro crisis. Although this proposal found some support, it also attracted strong criticisms as it risks raising the spreads for strong countries, diluting legacy debt and promoting moral hazard by weak countries. Because...

Persistent link: https://www.econbiz.de/10011084064

Dollarization, Bailouts and the Stability of the Banking System

Gale, Douglas M; Vives, Xavier - C.E.P.R. Discussion Papers - 2001

Central bank policy suffers from time-inconsistency when facing a banking crisis: A bailout is optimal ex post but ex ante it should be limited to control moral hazard. Dollarization provides a credible commitment not to help at the cost of not helping even when it would be ex ante optimal to do...

Persistent link: https://www.econbiz.de/10005788955

Regulatory Competition and Bank Risk Taking

Agur, Itai - C.E.P.R. Discussion Papers - 2009

How damaging is competition between bank regulators? This paper models regulators that compete because they want to supervise more banks. Both banks' risk profiles and their access to wholesale funding are endogenous, leading to rich interactions. The sensitivity of regulatory standards to bank...

Persistent link: https://www.econbiz.de/10008577817

Does Competition Reduce the Risk of Bank Failure?

Martinez-Miera, David; Repullo, Rafael - C.E.P.R. Discussion Papers - 2008

A large theoretical literature shows that competition reduces banks' franchise values and induces them to take more risk. Recent research contradicts this result: When banks charge lower rates, their borrowers have an incentive to choose safer investments, so they will in turn be safer. However,...

Persistent link: https://www.econbiz.de/10005124382

Too Many to Fail - An Analysis of Time Inconsistency in Bank Closure Policies

Acharya, Viral V; Yorulmazer, Tanju - C.E.P.R. Discussion Papers - 2004

This Paper shows that bank closure policies suffer from a ‘too-many-to-fail’ problem: when the number of bank failures is large, the regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank failures is small, failed banks can be acquired by the...

Persistent link: https://www.econbiz.de/10005136753