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Bacchetta, Philippe; Tille, Cédric; Van Wincoop, Eric - 2010

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 self-fulfilling shifts in risk made possible by a negative link between the current asset price and risk about the future asset price....

Persistent link: https://www.econbiz.de/10008797071

Regulating asset price risk

Bacchetta, Philippe; Tille, Cédric; Van Wincoop, Eric - 2011

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...

Persistent link: https://www.econbiz.de/10009009577

Infrequent random portfolio decisions in an open economy model

Bacchetta, Philippe; Van Wincoop, Eric; Young, Eric R. - 2021

We introduce a portfolio friction in a two-country DSGE model where investors face a constant probability to make new portfolio decisions. The friction leads to a more gradual portfolio adjustment to shocks and a weaker portfolio response to changes in expected excess returns. We apply the model...

Persistent link: https://www.econbiz.de/10012801368

Gradual portfolio adjustment : implications for global equity portfolios and returns

Bacchetta, Philippe; Van Wincoop, Eric - 2017

Modern open economy macro models assume the continuous adjustment of international portfolio allocation. We introduce gradual portfolio adjustment into a global equity market model. Our approach differs from related literature in two key dimensions. First, the time interval between portfolio...

Persistent link: https://www.econbiz.de/10011761264

Can sticky portfolios explain international capital flows and asset prices?

Bacchetta, Philippe; Davenport, Margaret; Van Wincoop, Eric - 2021

Recently portfolio choice has become an important element of many DSGE open economy models. Yet, a substantial body of evidence is inconsistent with standard frictionless portfolio choice models. In this paper we introduce a quadratic cost of changes in portfolio allocation into a two-country...

Persistent link: https://www.econbiz.de/10012800076

International portfolio choice with frictions : evidence from mutual funds

Bacchetta, Philippe; Tièche, Simon; Van Wincoop, Eric - 2020

Persistent link: https://www.econbiz.de/10012270711

Puzzling exchange rate dynamics and delayed portfolio adjustment

Bacchetta, Philippe; Van Wincoop, Eric - 2019

The objective of this paper is to show that the proposal by Froot and Thaler (1990) of delayed portfolio adjustment can account for a broad set of puzzles about the relationship between interest rates and exchange rates. The puzzles include: i) the delayed overshooting puzzle; ii) the forward...

Persistent link: https://www.econbiz.de/10012052397

Market efficiency reloaded: why insider trades do not reveal exploitable information

Dickgiesser, Sebastian; Kaserer, Christoph - 2008

by a subset of stocks with high arbitrage risk as measured by their idiosyncratic volatility. This restrains arbitrageurs … from engaging in otherwise profitable and price-correcting trades. As arbitrage risk is positively related to a stock's bid … mainly be explained by the cost associated with risky arbitrage. Our findings provide evidence that the German stock market …

Persistent link: https://www.econbiz.de/10010305695

Market liquidity risk: an overview

Stange, Sebastian; Kaserer, Christoph - 2009

Market liquidity is the ease of trading an asset. Its risk is the potential loss, because a security can only be traded at high or prohibitive costs. While the omnipresence and importance of market liquidity is widely acknowledged, it has long remained a more or less elusive concept. Treatment...

Persistent link: https://www.econbiz.de/10010305705

Measuring market liquidity risk - which model works best?

Ernst, Cornelia; Stange, Sebastian; Kaserer, Christoph - 2009

Market liquidity risk, the difficulty or cost of trading assets in crises, has been recognized as an important factor in risk management. Literature has already proposed several models to include liquidity risk in the standard Value-at-Risk framework. While theoretical comparisons between those...

Persistent link: https://www.econbiz.de/10010305708