We examine the business model of traditional commercial banks in the context of their co-existence with shadow banks. While both types of intermediaries create safe "money-like" claims, they go about this in very different ways. Traditional banks create safe claims with a combination of costly...

How do low interest rates affect investor behavior? We demonstrate that individuals “reach for yield,” that is, have a greater appetite for risk taking when interest rates are low. Using randomized investment experiments holding fixed risk premia and risks, we show low interest rates lead to...

The global trend towards tighten regulation of financial institutions and the adoption of International Financial Reporting Standards (IFRS) may hasten the unwinding of cross-shareholdings in Japan, and there are signs that this is already happening. Finding buyers for such shares is therefore a...

Valuation-based market timing demonstrates strong potential to improve risk-adjusted returns for conservative long-term investors. Such timing strategies based on the cyclically-adjusted price-earnings ratio provide comparable returns as a 100 percent stocks buy-and-hold strategy but with...

This paper argues that patriotism does not necessarily account for market resilience in the face of terror. Studying the 1920 Wall Street bombing, I find that rallying-around-the-flag does not explain the upbeat nature of the first trading session after the attack. In fact, NYSE-traded firms...

The massive rise in U.S. stockholding during the early twentieth century resulted in the deepening of securities markets, the spread of investment banks, and the expansion of publicly held corporations. This paper makes use of a unique panel database of South Dakota bank stockholders from...

Investors today have access to a wide variety of investment opportunities thanks to the increasingly competitive nature of the market. Mutual funds, out of the many other investment options available, are the one that are best suited for the average person since they provide the ability to...

One of Keynes' core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more boundedly rational...

One of Keynes’ core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more bounded rational...

This paper explores the impacts on an economy of a central bank changing the size and composition of its balance sheet. One of the ways in which such asset purchases could influence prices and demand is via portfolio balance effects. We develop and calibrate a simple OLG model in which...