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Counterparty Risk Externality : Centralized Versus Over-the-Counter Markets

Acharya, Viral V. - 2011

that parties take on short OTC positions that lead to levels of default risk that are higher than Pareto-efficient ones. In … particular, OTC markets feature a "counterparty risk externality" that we show can lead to ex-ante productive inefficiency. This … collateral requirements and subordination of OTC positions in bankruptcy can ameliorate the counterparty risk externality, they …

Persistent link: https://www.econbiz.de/10013125914

The Inefficient Markets Hypothesis : Why Financial Markets Do Not Work Well in the Real World

Farmer, Roger E. A. - 2012

efficiently allocate risk. Our work demonstrates that financial markets, by their very nature, cannot be Pareto efficient except …

Persistent link: https://www.econbiz.de/10013096129

On the Asset Market View of Exchange Rates

Burnside, A. Craig - 2012

If the asset market is complete then the difference between foreign and domestic agents' log intertemporal marginal rates of substitution (IMRSs) equals the log change in the real exchange rate. This equation is frequently used to argue that changes in real exchange rates reflect differences...

Persistent link: https://www.econbiz.de/10013096132

Efficiently Inefficient Markets for Assets and Asset Management

Garleanu, Nicolae - 2015

We consider a model where investors can invest directly or search for an asset manager, information about assets is costly, and managers charge an endogenous fee. The efficiency of asset prices is linked to the efficiency of the asset management market: if investors can find managers more...

Persistent link: https://www.econbiz.de/10013015107

The New Fama Puzzle

Bussière, Matthieu - 2018

We re-examine the Fama (1984) puzzle – the finding that ex post depreciation and interest differentials are negatively correlated, contrary to what theory suggests – for eight advanced country exchange rates against the US dollar, over the period up to June 2019. The rejection of the joint...

Persistent link: https://www.econbiz.de/10012927015

Information Acquisition, Efficiency, and Non-Fundamental Volatility

Hebert, Benjamin - 2020

This paper analyzes non-fundamental volatility and efficiency in a class of large games (including e.g. linear-quadratic beauty contests) that feature strategic interaction and endogenous information acquisition. We adopt the rational inattention approach to information acquisition but...

Persistent link: https://www.econbiz.de/10012840853

Stock Market Efficiency and Economic Efficiency : Is There a Connection?

Dow, James - 2008

In a capitalist economy prices serve to equilibrate supply and demand for goods and services, continually changing to reallocate resources to their most efficient uses. However, secondary stock market prices, often viewed as the most 'informationally efficient' prices in the economy, have no...

Persistent link: https://www.econbiz.de/10012774997

Herd on the Street : Informational Inefficiencies in a Market with Short-Term Speculation

Froot, Kenneth - 2001

Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e, can hold the asset forever. By contrast, we show that if speculators have short horizons, they...

Persistent link: https://www.econbiz.de/10012787681

Long Run Growth of Financial Technology

Farboodi, Maryam - 2017

In most sectors, technological progress boosts efficiency. But financial technology and the associated data-intensive trading strategies have been blamed for market inefficiency. A key cause for concern is that better technology might induce traders to extract other's information from order flow...

Persistent link: https://www.econbiz.de/10012955436

Investor Attention : Overconfidence and Category Learning

Xiong, Wei - 2010

Motivated by psychological evidence that attention is a scarce cognitive resource, we model investors' attention allocation in learning and study the effects of this on asset-price dynamics. We show that limited investor attention leads to ``category-learningquot; behavior, i.e., investors tend...

Persistent link: https://www.econbiz.de/10012762445

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