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Why Does Bad News Increase Volatility and Decrease Leverage?
Fostel, Ana - 2010
The literature on leverage until now shows how an increase in volatility reduces leverage. However, in order to explain … pro-cyclical leverage it assumes that bad news increases volatility. This paper suggests a reason why bad news is more … often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous …
Persistent link: https://www.econbiz.de/10013141101
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Why Does Bad News Increase Volatility and Decrease Leverage?
Fostel, Ana - 2011
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 …
Persistent link: https://www.econbiz.de/10013121405
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Why Does Bad News Increase Volatility and Decrease Leverage?
Fostel, Ana - 2011
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 …
Persistent link: https://www.econbiz.de/10013130738
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Tranching, CDS and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes
Fostel, Ana; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2011
We show how the timing of financial innovation might have contributed to the mortgage boom and then to the bust of 2007-2009. We study the effect of leverage, tranching, securitization and CDS on asset prices in a general equilibrium model with collateral. We show why tranching and leverage tend...
Persistent link: https://www.econbiz.de/10009207365
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Tranching, CDS and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes
Fostel, Ana; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2011
We show how the timing of financial innovation might have contributed to the mortgage bubble and then to the crash of 2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterwards. This may seem puzzling, since it implies that creating a derivative...
Persistent link: https://www.econbiz.de/10009251217
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Global Collateral : How Financial Innovation Drives Capital Flows and Increases Financial Instability
Fostel, Ana - 2017
amplifying financial volatility …
Persistent link: https://www.econbiz.de/10012962544
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Quantitative Easing, Collateral Constraints, and Financial Spillovers
Geanakoplos, John - 2018
The steady application of Quantitative Easing (QE) has been followed by big and non-monotonic effects on international asset prices and international capital flows. These are difficult to explain in conventional models, but arise naturally in a model with collateral. This paper develops a...
Persistent link: https://www.econbiz.de/10012906607
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Global Collateral and Capital Flows
Fostel, Ana - 2019
advanced) runs a current account deficit. Financial flows amplify asset price volatility in both countries, and gross flows … rich, similarly-developed countries, and why these flows increase volatility …
Persistent link: https://www.econbiz.de/10012891602
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Quantitative Easing, Collateral Constraints, and Financial Spillovers
Geanakoplos, John - 2019
The steady application of Quantitative Easing (QE) has been followed by big and non-monotonic effects on international asset prices and international capital flows. These are difficult to explain in conventional models, but arise naturally in a model with collateral. This paper develops a...
Persistent link: https://www.econbiz.de/10012896238
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Financial Innovation, Collateral and Investment
Fostel, Ana; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2013
Financial innovations that change how promises are collateralized can affect investment, even in the absence of any change in fundamentals. In C-models, the ability to leverage an asset always generates over-investment compared to Arrow Debreu. The introduction of CDS always leads to...
Persistent link: https://www.econbiz.de/10011196013