We study a model where some investors (“hedgers”) are bad at information processing, while others (“speculators”) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from...

We study a model where some investors (hedgers) are bad at information processing, while others (speculators) have superior information-processing ability and trade purely to exploit it. The disclosure of fi…nancial information induces a trade externality; if speculators refrain from trading,...

We study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading,...

This paper employs Swedish data containing security level information on households' stock holdings to investigate how consumption responds to changes in stock market returns. We exploit households' portfolio weights in previous years as an instrument for actual capital gains and dividends...

This paper analyzes a cheap talk model with heterogeneous receivers who are accountable for the correctness of their actions, showing that there exists a truth-revealing equilibrium. This sheds new light on the important role played by elections in shaping politicians' and, more surprisingly,...

This paper proposes a novel method to recover the market's beliefs about the Fed's monetary policy by using the responses of interest rates to economic news. We investigate the differential impact of news over time showing that the impact of this information is time varying, and that the...

This paper introduces a model of sweet talk in which a seller may acquire verifiable information and selectively disclose it to a buyer to negotiate a deal. We start by analyzing a model with common priors in which the seller generates information for two reasons: a trading motive and a profit...

This paper argues that in the presence of trading frictions and agency problems, the interbank market may be overly fragile, in the sense that small changes in the liquidity of assets used as collateral may lead to large swings in haircuts and a potential credit freeze. Our results highlight...

This paper explores how speculators can destabilize financial markets by amplifying negative shocks. During periods of turmoil created by an uncertainty shock, speculators react to declining asset prices by liquidating their holdings in hopes of buying them back later at a gain, despite the...

We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using an empirical design based on heterogeneity in local benefit generosity, we estimate that a one standard deviation increase in generosity attenuates...