Stress tests have become an important component of the supervisory toolkit. However, the extent of disclosure of stress-test results remains controversial. We argue that while stress tests uncover unique information to outsiders — because banks operate in second--best environments with...

Insurance Industry is going through a very important stage of its transformation - the transition from the classical system of management into a risk-based management. These changes were launched in Europe by international organizations which deal with the development of the necessary...

Hedge funds are a complex investment instrument with a great variety of players, innovative operational features, non homogeneous target markets. Recent developments of their regulations in Europe and in the U.S. shows: the objectives of financial regulation and its related problems, the current...

Heightened counterparty risk during the recent financial crisis has raised questions about the role clearinghouses play in global financial stability. Empirical identification of the effect of centralized clearing on counterparty risk is challenging because of the co-incidence of macro-economic...

We study the joint determination of fund managers' contracts and equilibrium asset prices. Because of agency frictions, investors make managers' fees more sensitive to performance and benchmark performance against a market index. This makes managers unwilling to deviate from the index and...

Recent scandals over the manipulation of LIBOR and foreign exchange benchmarks have spurred policy discussions of the appropriate design of financial benchmarks. We solve a version of the problem faced by a financial benchmark administrator. Acting as a mechanism designer, the benchmark...

This article analyzes the manifold situations in which the efficient-market hypothesis (EMH) has influenced—or has failed to influence—federal securities regulation and state corporate law, and the prospective roles for the EMH in these contexts. In federal securities regulation, the EMH has...

This introduces the symposium on financial economics.

We propose a multi-period model in which competitive arbitrageurs exploit discrepancies between the prices of two identical risky assets, traded in segmented markets. Arbitrageurs need to collateralize separately their positions in each asset, and this implies a financial constraint limiting...

Working with a sizeable, anonymous money manager, we randomly make available for lending two-thirds of the high-loan fee stocks in the manager's portfolio and withhold the other third to produce an exogenous shock to loan supply. We implement the lending experiment in two independent phases: the...