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A Critique of the Literature on the US Financial Debt Crisis

Stein, Jerome L. - CESifo - 2010

A healthy financial system encourages the efficient allocation of capital and risk. The collapse of the house price bubble led to the financial crisis that started in 2007. There is a large empirical literature concerning the relation between asset price bubbles and financial crises. I evaluate...

Persistent link: https://www.econbiz.de/10008534053

Application of Stochastic Optimal Control to Financial Market Debt Crises

Stein, Jerome L. - CESifo - 2009

This interdisciplinary paper explains how mathematical techniques of stochastic optimal control can be applied to the recent subprime mortgage crisis. Why did the financial markets fail to anticipate the recent debt crisis, despite the large literature in mathematical finance concerning optimal...

Persistent link: https://www.econbiz.de/10005094473

No-Trade in the Laboratory

Angrisani, Marco; Guarino, Antonio; Huck, Steffen; … - CESifo - 2008

We test the no-trade theorem in a laboratory financial market where subjects can trade an asset whose value is unknown. Subjects receive clues on the asset value and then set a bid and an ask at which they are willing to buy or to sell from the other participants. In treatments with no gains...

Persistent link: https://www.econbiz.de/10005406359

Predictability of Asset Returns and the Efficient Market Hypothesis

Pesaran, M. Hashem - CESifo - 2010

This paper is concerned with empirical and theoretical basis of the Efficient Market Hypothesis (EMH). The paper begins with an overview of the statistical properties of asset returns at different frequencies (daily, weekly and monthly), and considers the evidence on return predictability, risk...

Persistent link: https://www.econbiz.de/10008572494

Dynamic Trading and Asset Prices: Keynes vs. Hayek

Cespa, Giovanni; Vives, Xavier - CESifo - 2009

We investigate the dynamics of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model with long-term investors. We argue that the fact that prices can score worse or better than consensus opinion in predicting the fundamentals is a product of...

Persistent link: https://www.econbiz.de/10008583648

Expectations, Liquidity, and Short-term Trading

Cespa, Giovanni; Vives, Xavier - CESifo - 2011

We consider a two-period market with persistent liquidity trading and risk averse privately informed investors who have … a one period horizon. With persistence, prices reflect average expectations about fundamentals and liquidity trading … equilibria which can be ranked in terms of liquidity, volatility, and informational efficiency. We establish the limits of the …

Persistent link: https://www.econbiz.de/10008872222

Monetary Policy with Diverse Private Expectations

Kurz, Mordecai; Motolese, Maurizio; Piccillo, Giulia; … - CESifo - 2015

We study the impact of diverse beliefs on conduct of monetary policy. We use a New Keynesian Model solved with a quadratic approximation. Aggregation renders the belief distribution an aggregate state variable. Diverse expectations change standard results about a smooth trade-off between...

Persistent link: https://www.econbiz.de/10011205380

Creative Destruction and Productive Preemption

Norbäck, Pehr-Johan; Persson, Lars; Svensson, Roger - CESifo - 2013

We develop a theory of innovation for entry and sale into oligopoly, and show that inventions of higher quality are more likely to be sold (or licensed) to an incumbent due to strategic product market effects on the sales price. Such preemptive acquisitions by incumbents are shown to stimulate...

Persistent link: https://www.econbiz.de/10010877893

Pooling, Tranching and Credit Expansion

Bougheas, Spiros - CESifo - 2012

Traditionally banks have used securitization for expanding credit and thus their profitability. It has been well documented that, at least before the 2008 crisis, many banks were keeping a high proportion of the securities that they created on their own balance-sheets. Those securities retained...

Persistent link: https://www.econbiz.de/10010555214

Bank Capital Regulation with an Opportunistic Rating Agency

Efing, Matthias - CESifo - 2013

This paper models the strategic interaction between a rating agency, a bank and a bank regulator who lacks information about bank asset risk. The regulator can either (1) make bank capital requirements contingent on credit ratings; or (2) set rating-independent capital requirements. Truthful...

Persistent link: https://www.econbiz.de/10010667420

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