This dissertation consists of three essays in financial intermediation. The first essay develops a theory of deposits as a safer means of payment (bank notes or checks) in competing with money (cash). It turns out that banks can lend out the money from deposits for a charge, and this supply of...

One important function of banks is to issue liabilities, like demand deposits, that are relatively safe and also liquid (usable as means of payment). We introduce risk of theft and a safe-keeping role for banks into monetary theory. This provides a general equilibrium framework for analyzing...

We study the quot;efficient marketsquot; paradigm in the context of agency relations: principal-investors want to monitor and compensate their agent-traders using market security prices in quot;mark-to-marketquot; contracts. The view of each principal is that market prices aggregate the...

Individuals tend to simplify a complex portfolio decision problem into several manageable dimensions, each of which can frame their perception of risk in a certain way. We check this view by studying the effect of investment horizon on households' portfolio decisions. Using the Federal Reserve...

A bank determines whether potential borrowers are credit-worthy, that is, whether they meet the bank's credit or lending standards. In making this determination, each bank is in competition with other banks, but without knowing the competitor banks' credit standards. The resulting unique form of...

We show how to estimate affine term structure models from a panel of noisy bond yields using simulated maximum likelihood based on importance sampling. We approximate the likelihood function of the state-space representation of the model by correcting the likelihood function of a Gaussian...

In the IPO market, investors coordinate on acceptable IPO price based on the performance of past IPOs, and this generates an incentive for investment banks to produce information about IPO firms. In hot periods, the information produced by investment banks improves the quality of IPO firms, and...

We analyze the interaction between managerial decisions and firm value/asset prices by embedding the standard agency model of the firm into an otherwise standard asset pricing model. When the manager-agent's compensation depends on the firm's stock price performance, stock prices are set to...

We study an infinite-horizon Lucas tree model where a manager is hired to tend to the trees and is compensated with a fraction of the trees' output. The manager trades shares with investors and makes an effort that determines the distribution of the output. When the manager is less risk-averse...

In the IPO market, investors coordinate on acceptable IPO price based on the performance of past IPOs, and this generates an incentive for investment banks to produce information about IPO firms. In hot periods, the information produced by investment banks improves the quality of IPO firms, and...