We explore the ability of a macroprudential policy instrument to dampen the consequences of equity mispricing (a bubble) and the correction thereof (the bubble bursting), as well as the consequences for real activity in a production economy. In our model, producers are financed by both bank debt...

Using weekly data from 2003 to 2011, this paper examines the presence of exchange rate exposure in thirteen Canadian industry sectors. This study contributes to the literature in a number of ways: (i) it considers the presence of exposure not only in the full sample but also in the pre and...

Credit rating agencies have an incentive to maintain a public reputation for credibility among investors but also have an incentive to develop a second, private reputation for leniency among issuers. We show that in markets with few issuers, such as markets for structured assets, these...

We develop a tractable model in which trade is generated by asymmetry in agents' information sets. We show that, even if news are not generated by a stochastic volatility process, in the presence of information treatment and/or order processing costs, the (unique) equilibrium price process is...

We extend Kyle's (1985) model of insider trading to the case where liquidity provided by noise traders follows a general stochastic process. Even though the level of noise trading volatility is observable, in equilibrium, measured price impact is stochastic. If noise trading volatility is...

We report on experimental markets for a contingent claim asset that eight subjects traded for nine periods before the state was revealed. There is an informative binary signal that arrives after each of the first eight trading rounds. In our baseline treatment the realization of the signal is...

In an asset-pricing model, risk-averse agents need to forecast the conditional variance of a stock's return. A near-rational restricted perceptions equilibrium exists in which agents believe prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate...

This paper analyzes the implications of pre-trade transparency on market performance. In competitive markets, transparency increases market liquidity and reduces price volatility, whereas these results may not hold under imperfect competition. More importantly, market depth and volatility might...

We study the efficiency of the equilibrium price in a centralized, order-driven market where many asymmetrically informed traders are active for many periods. We show that asymmetries of information can lead to sub-optimal information revelation with respect to the symmetric case. In particular,...

We show that information about the counterparty of a trade affects the future trading decisions of individual traders. The effect is such that traders tend to reverse their order flow in line with the better-informed counterparties. Informed traders primarily incorporate their own private as...