How should new securities be designed? Traditional theories have little to say on this: the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous. This paper explicitly incorporates the transaction costs of issuing...

The returns of assets that are traded on financial markets are more volatile than the returns offered by intermediaries such as banks and insurance companies. This suggests that individual investors are exposed to more risk in countries which rely heavily on financial markets. In the absence of...

The returns of assets that are traded on financial markets are more volatile than the returns offered by intermediaries such as banks and insurance companies. This suggests that individual investors are exposed to more risk in countries which rely heavily on financial markets. In the absence of...

Prior to the Securities Exchange Act of 1934, manipulation of stock prices was an issue of great concern. The Act reduced the possibilities for manipulation by, among other things, making it illegal for a manager to sell short his firm’s shares or for false information about a firm to be...

Traditional asset-pricing theories assume complete market participation, despite considerable empirical evidence that most investors participate in a limited number of markets. The authors show that once the participation decision is endogenized, market properties change dramatically. First,...

Economists have believed for a long time that financial systems are fragile in the sense that small shocks can cause serious disruption. Research has focused on phenomena, such as bank runs, which affect the stability of individual institutions. Only recently has there been interest in the...