There has been a long debate about whether speculators are stabilizing or not. We consider a model where speculators have a stabilizing role in normal times, but may also provoke large risk panics. The very feature that makes arbitrageurs liquidity providers in normal times, namely their...

In this paper we examine the effect of collateral requirements on the prices of long- lived assets. We consider a Lucas-style infinite-horizon exchange economy with hetero- geneous agents and collateral constraints. There are two trees in the economy which can be used as collateral for...

The paper examines a game-theoretic model of a financial market in which asset prices are determined endogenously in terms of short-run equilibrium. Investors use general, adaptive strategies depending on the exogenous states of the world and the observed history of the game. The main goal is to...

In this paper we consider a canonical stochastic overlapping generations economy with sequentially complete markets. We examine how aggregate and individual shocks translate to changes in the distribution of wealth and how these movements in the wealth distribution affect asset prices and the...

Recent crises have seen very large spikes in asset price risk without dramatic shifts in fundamentals. We propose an explanation for these risk panics based on selfful filling shifts in risk made possible by a negative link between the current asset price and risk about the future asset price....