Within this study we propose different measures to prove the influence of prior retail fund performance on fund flows. In contrast to previous literature, our work indicates that investors behave directly and in a selective manner by redeeming their shares of poor performing funds. By using a...

We study financial stability with constraints on central bank intervention. We show that a forced reallocation of liquidity across banks can achieve fewer bank failures than a decentralized market for interbank loans, reflecting a pecuniary externality in the decentralized equilibrium....

This paper extends the Diamond and Dybvig (1983) model to study how the possibility of a bank run affects the investment decisions of banks and asset pricing. It is assumed that a bank run is triggered by extrinsic sunspot variables. The model generates two types of equilibria: a no-default...

We study efficiency properties of competitive economies in which banks provide liquidity insurance and interact on secondary asset markets. While all banks are subject to extrinsic risk, a bank's portfolio choice determines whether it is prone to a bank run in one of the extrinsic states. Asset...

Diversification through pooling and tranching securities was supposed to mitigate creditor runs in financial institutions by reducing their credit risk, yet many financial institutions holding diversified portfolios experienced creditor runs in the recent financial crisis of 2007-2009. We...

The U.S. financial markets faced an unprecedented rapid decline and recovery on May 6, 2010, known as the May 6 flash crash. Roughly one trillion $ market value in less than thirty minutes vanished with the biggest one-day point decline in the history of the DJIA at the time.Since the market...

Within this study we propose different measures to prove the influence of prior retail fund performance on fund flows. In contrast to previous literature, our work indicates that investors behave directly and in a selective manner by redeeming their shares of poor performing funds. By using a...

We study efficiency properties of competitive economies in which banks provide liquidity insurance and interact on secondary asset markets. While all banks are subject to extrinsic risk, a bank's portfolio choice determines whether it is prone to a bank run in one of the extrinsic states. Asset...

We model the interplay between trade in the interbank market and creditor runs on financial institutions. We show that the feedback between them can amplify a small shock into "interbank market freezing" with "liquidity evaporating". Credit crunches of the interbank market drive up the interbank...

We develop a new model for solvency contagion that can be used to quantify systemic risk in stress tests of financial networks. In contrast to many existing models it allows for the spread of contagion already before the point of default and hence can account for contagion due to distress and...