Emerging markets have received a particular attention of academic researchers and practitioners since they decided to open their domestic capital markets to foreign participants about three decades ago. At the same time, we remark that theoretical and empirical research in emerging stock markets...

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...