A restricted-perceptions equilibrium exists in which risk-averse agents believe stock prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate risk, bubbles and crashes arise. These effects are stronger when agents allow for ARCH in excess returns.

We analyze a strategic trading model where an overconfident insider is required to publicly disclose his trades after the fact. We find the more confident insider is more concerned about the effect the initial trading has on the future.

Using data on the establishment of Venture Capital syndicates in Germany during the period 1995-2005 I document that relationships are formed between VCs that occupy different strategic positions in the network to allow for the combination of complimentary investment expertise

After every major financial crisis, the question about the responsibility of the rating agencies resurfaces. Regarding government bonds, the most frequently voiced concern targeted “unreasonably” bad ratings that might trigger capital flights and increasing risk premia which sanction further...

This experiment shows that varying the commission received by financial advisors strongly influences insurance purchase.

In this paper, we explicitly model a bond rating process under varying degrees of bond opacity and derive conditions under which disagreements between rating agencies (rating splits) can serve as a useful proxy for opacity in empirical analyses.

We consider a model of financial intermediation with a monopolistic competition market structure. A non-monotonic relationship between risk measured as a probability of default and the degree of competition is established.

Analyses of budget balances in 18 emerging presidential democracies observed prior to the financial crisis of 2008–2009 show that credit rating agencies induce fiscal discipline in election years, thus reducing incentives for governments to borrow opportunistically for short-term electoral gain.

Using an empirical likelihood approach, we show that generalized linear models can still be consistently estimated even if dependent variables are not missing at random, and derive a Hausman test by comparing this estimator to the standard one.

We study the welfare implications of public information precision in a beauty contest framework allowing for optimal stabilization policies and information obfuscation. When policy makers’ ability to obfuscate information is constrained, increasing public information precision can be welfare...