An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond...

Classic models of fire-sales that emphasize liquidity-constrained natural buyers can-notfully account for the asset fire-sales during the Financial Crisis of 2008. I present a modelto demonstrate that fire-sales may happen even when there is a sizable pool of naturalbuyers and in the absence of...

The paper argues that bond investors (and, implicitly large creditors in general), may not necessarily demonstrate the “Investors' Smartness” that some previous studies attributed to large institutional holders, when it comes to pricing-in for economic shocks likely to occur in future. This...

How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds' net asset values to pass on funds' trading costs to transacting shareholders. Using...

This paper reveals and tests a new theoretical implication of the credit channel of monetary policy: as financial frictions (monitoring or auditing costs) increase, the reaction of stock prices to monetary policy shocks decreases. Correspondingly, towards the end of the Enron accounting scandal,...

In 2018, the Russian stock market held up its reputation as one of the most volatile markets in the world. In 2018, Russian companies' stocks turned out to be instruments with highest returns, outperforming 36 world's largest stock exchange markets, in contrast to 2017, when Russian stocks were...

The U.S. stock market entered a major correction on 2 February 2018, impacting most of the markets worldwide. Stock indices plunged as volatility increased. The correction was spurred mainly by the U.S. stock market overvaluation as well as concerns about inflation spike in the United States....

We use the Gordon (1959) constant growth model to explain stock returns of S&P500 index constituents during the COVID-19 implied market downturn and subsequent V-shaped recovery. Stock returns are largely affected by a change in the implied growth rate w and only to a lesser extent by a change...

We develop an asset-pricing model with endogenous corporate policies that explains how inflation jointly impacts real asset prices and corporate default risk. Our model includes two empirically grounded nominal frictions: fixed nominal coupons and sticky profitability. Taken together, these two...