I develop an equilibrium model of U.S. money market funds (MMFs) and use it to analyze the effect of recently proposed regulations on the liquidity provided by these funds and their fragility. The model captures some of the key institutional features of MMFs, such as the "breaking the buck"...

This paper proposes a theory which explains why some assets are traded over the counter while others are traded in centralized exchanges. We develop a model in which the equilibrium market structure is driven by the differences in the trading needs of investors. In our model, trade takes place...

I study a model in which banks need to borrow to make risky loans whose return is private information known only by the bank who made the loan. To raise funds, banks can either sell assets or pledge them as collateral. I show that collateral contracts arise in equilibrium even though all agents...

This paper studies the social value of closing price differentials in financial markets. We show that arbitrage gaps (price differentials between markets) exactly correspond to the marginal social value of executing an arbitrage trade. We further show that arbitrage gaps and measures of price...

We study the determinants of asset market fragmentation in a model with strategic investors that disagree about the value of an asset. Investors' choices determine the market structure. Fragmented markets are supported in equilibrium when disagreement between investors is low. In this case,...

Using highly detailed data on the loan portfolios of large U.S. banks, we document that these banks "specialize" by concentrating their lending disproportionately into one industry. This specialization improves a bank’s industry-specific knowledge and allows it to offer generous loan terms to...

We develop a tractable framework to study the optimal design of stress scenarios. A principal wants to manage the unknown risk exposures of a set of agents. She asks the agents to report their losses under hypothetical scenarios before mandating actions to mitigate the exposures. We show how to...