We develop a multiple asset rational expectations model of asset prices to explain financial market contagion. Although the model allows contagion through several channels, our focus is on contagion through cross-market rebalancing. Through this channel, investors transmit idiosyncratic shocks...

This paper theoretically studies the effects of Knightian Uncertainty in interbank markets when the source of the Knightian Uncertainty is incomplete information on banks’ risk exposures. The main findings in the paper are: (1) When interbank loans are arranged in anonymous brokered, instead...

Economist Matthew Pritsker of the Board of Governors of the Federal Reserve System offers a theoretical view on how regulators can reduce uncertainty in the financial markets by improving the availability of information.

I present a fully-rational symmetric-information model of an IPO, and a dynamic imperfectly competitive model of trading in the IPO aftermarket. The model helps to explain IPO underpricing, underperformance, and why share allocations favor large institutional investors. In the model,...

The growing share of financial assets that are held and managed by large institutional investors whose desired trades move asset prices is at odds with the traditional competitive assumption that investors are small and take prices as given. This paper relaxes the traditional price-taking...

We develop a multiple asset rational expectations model of asset prices to study the determinants of financial market contagion, and to provide an explanation for the pattern of contagion during the Asian financial crisis. Our findings show that the pattern and severity of financial contagion...

Recent research has shown that different methods of computing Value at Risk (VAR) generate widely varying results, suggesting the choice of VAR method is very important. This paper examines six VAR methods, and compares their computational time requirements and their accuracy when the sole...