We formalize the idea that the financial sector can be a source of non-fundamental risk. Households' desire to hedge … against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices … may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes …

In this paper, I develop a model in which risk-averse investors possess private information regarding both a stock …'s expected payoff and its risk. These investors trade in the stock and a derivative whose payoff is driven by the stock's risk …. In equilibrium, the derivative is used to speculate on the stock's risk and to hedge against adverse fluctuations in the …

This paper develops methods and a framework of financial market theory. We model financial markets as a system of … that impact financial markets. We use the risk ratings of agents as their coordinates and approximate a description of … in the economic domain. The motion of separate agents in the economic domain due to a change of agents’ risk rating …

This paper develops methods and a framework of financial market theory. We model financial markets as a system of … that impact financial markets. We use the risk ratings of agents as their coordinates and approximate a description of … in the economic domain. The motion of separate agents in the economic domain due to a change of agents' risk rating …

well-functioning marketplace will also exist in the future. Market liquidity risk is the risk that the market will function … effects of market liquidity risk on asset pricing, investment management, corporate finance, banking, financial crises …

, and attenuate the impacts of uncertainty shocks by raising the effective risk-bearing capacity of the informed investors. …

dividends next period as ambiguous. We calibrate the agent's ambiguity aversion to match only the first moment of the risk …

dividends next period as ambiguous. We calibrate the agent's ambiguity aversion to match only the first moment of the risk …