We study the effects of diverse beliefs on equilibrium securitization. We provide a simple characterization of the optimal securities. Pooling and tranching of assets emerges in equilibrium as a consequence of traders' diverse beliefs about asset returns. Under risk neutrality, the issuer of...

We show how decentralized individual investments can efficiently allocate capital to innovating firms via equity crowdfunding. We develop a model where consumers have privately known consumption preferences and may act as investors. Consumers identify worthwhile investments based on their own...

In many environments, including credit and online markets, past records about participants are collected, published, and erased after some time. We study the effects of erasing past records on trade and welfare in a dynamic market where each seller's quality follows a Markov process and buyers...

In many environments, including credit and online markets, past records about participants are collected, published, and erased after some time. We study the effects of erasing past records on trade and welfare in a dynamic market where each seller's quality follows a Markov process and buyers...

We build a model of the financial sector to explain why adverse asset shocks in good economic times lead to a sudden drying up of liquidity. Financial firms raise short-term debt in order to finance asset purchases. When asset fundamentals worsen, debt induces firms to risk-shift; this limits...

The aim of this article is to review key issues connected with the structural aspects of the financial system and the resulting financial system models. The structure of the article derives directly from this aim and reflects its review character. First, the structure of the financial system and...

We study the transmission of liquidity shocks from one sector of the economy to other sectors in a general equilibrium model with multiple trading venues connected by profit-seeking arbitrageurs. Arbitrageurs effectively provide liquidity to investors by inter-mediating trades between venues....

This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The Small Fund Industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The Large Fund Industry model derives...

The capital structure arbitrage strategy exploits the discrepancies between the credit default swap and equity markets. It assumes that both markets instantaneously react to new information, so it fails to take into account the lead-lag relationships between the prices in the two markets and...

Evidence from the main Colombian payment and settlement systems verifies that local financial networks have self-organized into a modular (i.e. clustered) scale-free (i.e. inhomogeneous) architecture that favors everyday robustness and performance in exchange for rare episodes of fragility but...