This paper studies the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully...

This paper develops an adaptive learning scheme for an asset market with heterogeneous traders who are characterized by linear mean-variance preferences. We introduce the concept of a perfect forecasting rule which generates rational expectations for fundamentalists in the presence of investors...