Market reactions to the 2019 novel coronavirus disease (COVID-19) provide new insights into how real shocks and financial policies drive firm value. Initially, internationally oriented firms, especially those more exposed to trade with China, underperformed. As the virus spread to Europe and the...

Foreign exchange operates as a two-tiered over-the-counter (OTC) market dominatedby large, strategic dealers. Using proprietary high frequency data on quotesby the largest foreign exchange dealer banks in the dealer-to-customer (D2C) market,we find a significant heterogeneity in their behavior....

We propose a "debt view" to explain the dominant international role of the dollar and provide broad empirical support for it. Within a simple capital structure model in which firms optimally choose the currency composition of their debt, we derive conditions under which all firms issue debt in a...

Since the global financial crisis, the Swiss National Bank has been accumulating reserve assets amounting to the size of the Swiss GDP. Yet, the Swiss franc is still considered to be significantly over-valued. This paper analyzes the drivers behind the new situation and discusses challenges and...

Exchange rates are crucial variables for each economy as they affect the price at which a country can exchange goods and services with other currency areas. A strong domestic currency makes it relatively cheap to import goods and services, but at the same time renders domestic goods and services...

We develop a general equilibrium model with intermediaries at the heart of international financial markets. Global intermediaries bargain with households and extract rents for providing access to foreign claims. The behavior of intermediaries, by tilting state prices, breaks monetary neutrality...

We develop an equilibrium model of real and financial market integration in which real firms and financial investors independently decide on their investment into different locations (countries). We show that, in the presence financial frictions, firms' real investment choices become strategic...

Using a novel and comprehensive dataset, we provide the first systematic study of liquidity in the foreign exchange (FX) market. Contrary to common perceptions, we find significant variation in liquidity across exchange rates, substantial costs due to FX illiquidity, and strong commonality in...

We introduce the concept of “negative bubbles” as the mirror image of standard financial bubbles, in which positive feedback mechanisms may lead to transient accelerating price falls. To model these negative bubbles, we adapt the Johansen-Ledoit-Sornette (JLS) model of rational expectation...

Hedge funds significantly reduced their equity holdings during the recent financial crisis. In 2008Q3-Q4, hedge funds sold about 29% of their aggregate portfolio. Redemptions and margin calls were the primary drivers of selloffs. Consistent with forced deleveraging, the selloffs took place in...