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Brunnermeier, Markus K.; Parker, Jonathan A. - London School of Economics (LSE) - 2002

This paper introduces a tractable, structural model of subjective beliefs. Since agents that plan for the future care … overestimate the return of their investment and underdiversify. In general equilibrium, agents' prior beliefs are endogenously … and overoptimistic, and consume more than implied by rational beliefs early in life. Third, in choosing when to undertake …

Persistent link: https://www.econbiz.de/10010746723

Rational trader risk

Kondor, Peter - London School of Economics (LSE) - 2004

Allowing for a richer information structure than usual, we show that rational traders’ calculation with short-term price fluctuations may heavily influence their behaviour even if the interim price is not influenced by non-rational agents i.e. there is no noise trader risk. Instead, traders...

Persistent link: https://www.econbiz.de/10010884635

Unique equilibrium in a dynamic model of crises with frictions

Guimaraes, Bernardo - London School of Economics (LSE) - 2005

This paper studies a dynamic model of crises with timing frictions that combines the main aspects of Morris and Shin (1998) and Frankel and Pauzner (2000). The usual arguments for existence and uniqueness of equilibrium cannot be applied. It is shown that the model has a unique equilibrium...

Persistent link: https://www.econbiz.de/10010928606

Search and endogenous concentration of liquidity in asset markets

Vayanos, Dimitri; Wang, Tan - London School of Economics (LSE) - 2004

We develop a search-based model of asset trading, in which investors of different horizons can invest in two identical assets. The asset markets are partially segmented: buyers can search for only one asset, but can decide which one. We show that there exists a "clientele" equilibrium where one...

Persistent link: https://www.econbiz.de/10010928661

Uncertainty and investment dynamics

Van Reenen, John; Bloom, Nick; Bond, Steve - London School of Economics (LSE) - 2006

This paper shows that, with (partial) irreversibility, higher uncertainty reduces the impact effect of demand shocks on investment. Uncertainty increases real option values making firms more cautious when investing or disinvesting. This is confirmed both numerically for a model with a rich mix...

Persistent link: https://www.econbiz.de/10010928730

The impact of uncertainty shocks: firm level estimation and a 9/11 simulation

Bloom, Nick - London School of Economics (LSE) - 2006

Uncertainty appears to vary strongly over time, temporarily rising by up to 200% around major shocks like the Cuban Missile crisis, the assassination of JFK and 9/11. This paper offers the first structural framework to analyze uncertainty shocks. I build a model with a time varying second...

Persistent link: https://www.econbiz.de/10010744930

Rational limits to arbitrage

Zigrand, Jean-Pierre - London School of Economics (LSE) - 2001

It is often argued that asset prices exhibit patterns incompatible with the behaviour of rational, optimizing agents. This paper proposes a rational framework which generates asset prices which appear irrational. This is accomplished by studying rational expectations equilibria in the presence...

Persistent link: https://www.econbiz.de/10010745688

A search-based theory of the on-the-run phenomenon

Vayanos, Dimitri; Weill, Pierre-Olivier - London School of Economics (LSE) - 2005

We propose a model in which assets with identical cash flows can trade at different prices. Agents enter into an infinite-horizon, steady-state market to establish long or short positions. Both the spot and the asset-lending market operate through search. Short-sellers can endogenously...

Persistent link: https://www.econbiz.de/10010745747

Pollution permits, strategic trading and dynamic technology adoption

Moreno-Bromberg, Santiago; Taschini, Luca - London School of Economics (LSE) - 2011

This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can invest both in low-emitting production technologies and trade permits. In the model, technology adoption and...

Persistent link: https://www.econbiz.de/10010745754

Anatomy of a market crash: a market microstructure analysis of the Turkish overnight liquidity crisis

Danielsson, Jon; Saltoglu, Burak - London School of Economics (LSE) - 2003

An order flow model, where the coded identity of the counterparties of every trade is known, hence providing institution level order flow, is applied to both stable and crisis periods in a large and liquid overnight repo market in an emerging market economy. Institution level order flow is much...

Persistent link: https://www.econbiz.de/10010746370