This paper formalizes the idea that more hedging instruments may destabilize markets when traders are heterogeneous and …

In this paper we study the effects of financial integration on risk-sharing. Conventional macroeconomic theory suggests … that the integration of financial markets improves welfare. In contrast to the literature we assume that households have … heterogeneous beliefs. Because of the differences in beliefs, households are not only sharing the risk but also speculating. We show …

We prove that in smooth Markovian continuous-time economies with potentially complete asset markets, Radner equilibria … with endogenously complete markets exist. -- Potentially complete market ; Continuous-time financial ; market ; Radner …

occurs for both complete and incomplete asset markets. …

, OTC markets feature a counterparty risk externality that we show can lead to ex-ante productive inefficiency. This …We model the opacity of over-the-counter (OTC) markets in a setup where agents share risks, but have incentives to … take on short OTC positions that lead to levels of default risk that are higher than Pareto-efficient ones. In particular …

markets than standard classification procedures. We show that the VPIN metric is a useful indicator of short-term, toxicity …

. Monitoring leverage provides information about how risk builds up during booms as leverage rises and how crises start when …-free measure that can be observed directly, in contrast to other measures of systemic risk that require complex estimation. Asset … leverage is a fundamental measure of systemic risk and so is important in itself, but it is also the building block out of …

In the presence of uninsurable idiosyncratic risk, the optimal credit contract allows for the possibility of default … save. When default is sufficiently high, credit markets may collapse. A regulatory requirement on the level of savings can … increase risk-sharing and improve welfare by increasing the gains to trade in credit exchange. Under the appropriate …