We characterize the effect of short selling costs on interactions between informed and uninformed speculators, showing how this dynamic impacts corporate decisions. Manipulation coexists with informed trading at low shorting costs, reducing price informativeness and firm investment. Manipulation...

We develop a model showing how investors, venture capitalists (VCs), and entrepreneurs integrate into a venture capital fund (VCF). Investors' demand for VC services will depend on their beliefs about the accuracy of VC screening and their expected revenue without a VC. The quality of screening...

We develop a model in which investment risk drives the demand for CDS insurance. The model shows the efficiency of CDS contracting over the state of the economy. It shows that CDS overinsurance (insurance in excess of renegotiation surpluses) is procyclical, allowing for greater financing when...

Credit default swaps (CDSs) are thought to ease borrowing by protecting lenders against default. This paper develops a model of the demand for CDS when borrowers choose the riskiness of investment and verification is imperfect. The model shows that CDSs may lead to risk-shifting, increasing the...

Using microdata on stock-level lending positions from German mutual funds, we show that active funds use the equity lending market to obtain information about short sale demand. Funds reduce long positions in response to these demand signals, which allows fund managers to front-run public...