We examine how the banking sector may ignite the formation of asset price bubbles when there is access to abundant … liquidity. Inside banks, given lack of observability of effort, loan officers (or risk takers) are compensated based on the … macroeconomic risk, investors reduce direct investment and hold more bank deposits. This ‘flight to quality’ leaves banks flush with …

allocation based on mean-variance portfolio theory applied to sectoral returns. Wefind that the realized sectoral allocation of …

producers' hedging demand (speculators' risk capacity) increase hedging costs via price-pressure on futures, reduce producers …' inventory holdings, and thus spot prices. Consistent with our model, producers' default risk forecasts futures returns …,spot prices, and inventories in oil and gas market data from 1980-2006, and the component of the commodity futures risk premium …

We present a model where firms compete for scarce managerial talent ("alpha") and managers are risk-averse. When …

producers' hedging demand (speculators' risk capacity) increase hedging costs via price-pressure on futures, reduce producers …' inventory holdings, and thus spot prices. Consistent with our model, producers' default risk forecasts futures returns …,spot prices, and inventories in oil and gas market data from 1980-2006, and the component of the commodity futures risk premium …

non-rationed firms but their borrowing capacity is also limited by the risk-taking moral hazard. The market-clearing price …