, and how it depends on volatility. We describe the dynamic feedback properties of leverage, volatility, and asset prices …, including contagion, flight to collateral, and swings in the issuance volume of the highest quality debt. We explain the … cycle in which asset prices display clustered volatility and fat tails even though all the shocks are essentially Gaussian. …

asset to the riskless rate of interest. Finally, our Binomial Leverage-Volatility theorem provides a precise link between … leverage and volatility. …

volatility. …

volatility. …

A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro …-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second … volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest …

A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro …-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second … volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest …

A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro …-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second … volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest …