I explain the key failure mechanics of large dealer banks, and some policy implications. This is not a review of the financial crisis of 2007-2009. Systemic risk is considered only in passing. Both the financial crisis and the systemic importance of large dealer banks are nevertheless obvious...

Now that the worst of the financial storm is over, regulators are setting new strategies to deal with the systemic importance of the $427 trillion ($604 trillion) over-the-counter (OTC) derivatives market. This paper explores the three major sources of disruptive effects in OTC derivatives...

Credit default swaps (CDSs) are among the most successful financial innovationsof recent years, which is reflected in the rapidly expanding market. CDS trading occurs inthe over-the-counter market, which relies heavily on broker intermediation to arrangetrades. We provide empirical evidence that...

There are few things more constant in life than the rise and fall of financial markets. When markets crash, however, we are forced to restore them while learning from our mistakes. In the wake of the recent subprime mortgage crisis, Congress has drastically but deservedly overhauled the...

We consider the problem faced by an investor who must liquidate a given basket of assets over a finite time horizon. The investor's goal is to maximize the expected utility of the sales revenues over a class of adaptive strategies. We assume that the investor's utility has constant absolute risk...

This paper describes price discovery and liquidity provision in a dynamic limit order market with asymmetric information and non-Markovian learning. Investors condition on information in both the current limit order book and also, unlike in previous re-search, on the prior order history when...

This study examines the relation between individual investor trading and future stock returns in the Australian equity market. We find that the net trading of Australian individual investors is positively related to future returns. We show that this association is driven by individual investors...

We discuss a simple, exactly solvable model of stochastic stock dynamics that incorporates regime switching between healthy and distressed regimes. Using this model, which is analytically tractable, we discuss a way of extracting expected returns for stocks from realized CDS spreads,...

We examine portfolio trading and its impact on corporate bond liquidity. Our theoretical framework identifies how portfolio trades provide dealers with benefits through a diversification channel and with costs through a balance sheet channel. We then test empirically multiple hypotheses on the...