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The Virtues and Vices of Equilibrium and the Future of Financial Economics

Farmer, J. Doyne; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2008

The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then...

Persistent link: https://www.econbiz.de/10004976721

Empirical Implications of Arbitrage-Free Asset Markets

Maheswaran, S.; Sims, Christopher A. - Cowles Foundation for Research in Economics, Yale University - 1992

The martingale-equivalence condition delivered by a non-arbitrage assumption in complete asset markets has implications for fine-time-unit asset price behavior that can be rejected with finite spans of data. A class of stochastic processes that could model such deviations from...

Persistent link: https://www.econbiz.de/10005762776

Actual and Warranted Relations Between Asset Prices

Beltratti, Andrea E.; Shiller, Robert J. - Cowles Foundation for Research in Economics, Yale University - 1991

Efficient markets models assert that the price of each asset is equal to the optimal forecast of its ex-post or fundamental value. These models do not imply, however, that the covariance between two asset prices is given by the covariance between the ex-post values they respectively forecast:...

Persistent link: https://www.econbiz.de/10005463944

Liquidity Black Holes

Morris, Stephen; Shin, Hyun Song - Cowles Foundation for Research in Economics, Yale University - 2003

Traders with short horizons and privately known trading limits interact in a market for a risky asset. Risk …

Persistent link: https://www.econbiz.de/10005463975

Dollar Denominated Debt and Optimal Security Design

Geanakoplos, John; Kubler, Felix - Cowles Foundation for Research in Economics, Yale University - 2003

we show that it might well be dollar debt that Pareto dominates. In particular, if the lender is sufficiently risk averse … dominates peso debt. However, if there are persistent gains to risk sharing between the countries, then peso debt Pareto … period, we show that when persistent gains to risk sharing hold, America must gain from Peso debt but Bolivia might lose …

Persistent link: https://www.econbiz.de/10005087365

Greek Debt and American Debt: Graduation Speech at the University of Athens Economics and Business School

Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2011

This is the graduation speech I gave on receiving an honorary doctorate at the University of Athens Economics and Business School. I talk about my Greek family, about how I got interested in economics, and then how in the 1990s I came to think about default, collateral, and leverage as the...

Persistent link: https://www.econbiz.de/10009368555

Tranching, CDS and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes

Fostel, Ana; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2011

We show how the timing of financial innovation might have contributed to the mortgage bubble and then to the crash of 2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterwards. This may seem puzzling, since it implies that creating a derivative...

Persistent link: https://www.econbiz.de/10009251217

Tranching, CDS and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes

Fostel, Ana; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2011

We show how the timing of financial innovation might have contributed to the mortgage boom and then to the bust of 2007-2009. We study the effect of leverage, tranching, securitization and CDS on asset prices in a general equilibrium model with collateral. We show why tranching and leverage tend...

Persistent link: https://www.econbiz.de/10009207365

Monitoring Leverage

Geanakoplos, John; Pedersen, Lasse H. - Cowles Foundation for Research in Economics, Yale University - 2011

. Monitoring leverage provides information about how risk builds up during booms as leverage rises and how crises start when …-free measure that can be observed directly, in contrast to other measures of systemic risk that require complex estimation. Asset … leverage is a fundamental measure of systemic risk and so is important in itself, but it is also the building block out of …

Persistent link: https://www.econbiz.de/10009371330

Local Identification of Nonparametric and Semiparametric Models

Chen, Xiaohong; Chernozhukov, Victor; Lee, Sokbae; … - Cowles Foundation for Research in Economics, Yale University - 2011

In parametric models a sufficient condition for local identification is that the vector of moment conditions is differentiable at the true parameter with full rank derivative matrix. We show that additional conditions are often needed in nonlinear, nonparametric models to avoid nonlinearities...

Persistent link: https://www.econbiz.de/10010817218