This paper proposes a theory which explains why some assets are traded over the counter while others are traded in centralized exchanges. We develop a model in which the equilibrium market structure is driven by the differences in the trading needs of investors. In our model, trade takes place...

I consider an economy where investors delegate their investment decisions to financial institutions that choose across multiple investment opportunities featuring different levels of idiosyncratic risk and different degrees of correlation with the aggregate of the economy. Investors solve an...

To answer this question, we first create a measure of the opportunity costs of holding liquid assets as the wedge between the cost of capital and the return of firms’ cash portfolio. Exploiting both cross-sectional and time-series variation of opportunity costs, we estimate a negative...

In an environment of Over-The-Counter trading with adverse selection we study traders' incentives to screen their counterparties under different clearing arrangements. When the clearing arrangement is also a choice, traders decide which types of transactions to clear under each arrangement, with...

Trade in intermediate inputs raises firm productivity as it enables producers to access both better and novel inputs of production. The question is: by how much? This paper develops a framework to answer this question. We explicitly allow for (i) firms sourcing from multiple countries, (ii)...

This paper studies the effect of reductions in information asymmetry - information globalization - on international risk sharing and trade flows. Information frictions are often invoked to explain low levels of international trade beyond those that measured trade frictions (tariffs,...

I quantify the risk-return relationship in the foreign exchange market in the cross-section and across investment horizons by focusing on the role of multiple sources of US consumption risk. To this end, I estimate a flexible structural model of the joint dynamics of aggregate consumption,...

The most common New-Keynesian model-with sticky-prices-has potentially implausible implications in a zero-lower bound environment. Fiscal and forward guidance multipliers can be implausibly large. Moreover, the sticky-price model implies that positive supply shocks, such as an increase in...

We propose a theory of inattention solely based on preferences, absent any cognitive limitations, or external costs of acquiring information. Under disappointment aversion, information decisions and risk attitude are intertwined, and agents are intrinsically information averse. We illustrate...

Smaller firms sell more equity in response to expansions than do larger firms. Also, consumption is more pro-cyclical for high income groups than others. In this paper, we present a model that captures key features of both of these patterns found in recent empirical studies. Managers own firms...