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We propose a broad measure of liquidity for the overall financial market by exploiting its connection with the amount of arbitrage capital in the market and the potential impact on price deviations in US Treasurys. When arbitrage capital is abundant, we expect the arbitrage forces to smooth out...
Persistent link: https://www.econbiz.de/10012462189
This paper examines equilibrium and welfare in a tractable class of economies with externalities, strategic complementarity or substitutability, and incomplete information. In equilibrium, complementarity amplifies aggregate volatility by increasing the sensitivity of actions to public...
Persistent link: https://www.econbiz.de/10012466845
This paper reconsiders the Phelps-Lucas hypothesis, according to which temporary real effects of purely nominal disturbances result from imperfect information, but departs from the assumptions of Lucas (1973) in two crucial respects. Due to monopolistically competitive pricing, higher-order...
Persistent link: https://www.econbiz.de/10012470042
Previous work which showed that prices could aggregate perfectly the diverse information of traders depended critically on the assumption that all agents had constant absolute risk utility. We show that either all agents must have constant absolute risk aversion utility, or all must have...
Persistent link: https://www.econbiz.de/10012475828
A model of interest rate movements in response to new information on the money stock is developed.The model, which incorporates several earlier approaches as special cases, makes explicit the manner in which estimated interest rate responses to money surprises depend on the relative variances of...
Persistent link: https://www.econbiz.de/10012477495
In a market with symmetric information about fundamentals, can information-based trade still arise? Consider bond and FX markets, where private information about nominal cash flows is generally absent, but participants are convinced that superior information exists. We analyze a class of...
Persistent link: https://www.econbiz.de/10012468804
In absence of insurance contracts to share risk, public information is a double-edged sword. On the one hand, it empowers self-insurance as agents better react to shocks, reducing risk. On the other hand, it weakens market-insurance as common knowledge of shocks restricts trading risk. We embody...
Persistent link: https://www.econbiz.de/10012482704
This study analyzes information production and trading behavior of banks with lending relationships. We combine trade-by-trade supervisory data and credit-registry data to examine banks' proprietary trading in borrower stocks around a large number of corporate events. We find that relationship...
Persistent link: https://www.econbiz.de/10013388877
We empirically test an information economics based theory of social preferences in which ego utility and self … a large price discount for the good. The combined evidence supports the self-signaling theory whereby price discounts …
Persistent link: https://www.econbiz.de/10012457193
Popularity is self reinforcing. The attention garnered by popular options propels further interest in them. Yet rather than blindly follow the crowd, most pay attention to how well these items match their tastes. We model this role of social learning in guiding selective attention and market...
Persistent link: https://www.econbiz.de/10012457666