I study the causal effect of bond investor demand on the financing and investment decisions of nonfinancial firms using granular data on the bond transactions of U.S. insurance companies. Liquidity inflows from insurance premiums combined with insurers' persistent investment preferences identify...

Central clearing counterparties (CCPs) were created to reduce default losses for market participants in derivatives markets. We show that not all market participants benefit, and some are worse off. Loss sharing rules and their interaction with market network structure affect who are winners and...

Common systemic risk measures focus on the instantaneous occurrence of triggering and systemic events. However, systemic events may also occur with a time-lag to the triggering event. To study this contagion period and the resulting persistence of institutions' systemic risk we develop and...

We study insurance markets with individuals that have limited financial literacy. In our model, complexity of insurance contracts causes individuals to be uncertain about insurance payouts. As a result, a trade-off between second-order (risk aversion) and third-order (prudence) risk preferences...

We prove the existence of the constrained efficient Miyazaki (1977)-Wilson (1977)-Spence (1978) equilibrium in competitive markets with adverse selection when the distribution of unobservable types is continuous. Our existence proof applies under extremely general assumptions about individual...

Macro-finance theory predicts that financial fragility builds up when volatility is low. This "volatility paradox" challenges traditional systemic risk measures. I explore a new dimension of systemic risk, spillover persistence, which is the average time horizon at which a firm's losses increase...

Life insurers massively sell savings contracts with surrender options which allow policyholders to withdraw a guaranteed amount before maturity. These options move toward the money when interest rates rise. Using data on German life insurers, we estimate that a 1 percentage point increase in...

Life insurers sell savings contracts with surrender options, allowing policyholders to prematurely withdraw guaranteed surrender values. Surrender options move toward the money when interest rates rise. Hence, higher interest rates raise surrender rates, as we document for the German life...

Central clearing counterparties (CCPs) were created to reduce default losses for market participants in derivatives markets. We show that not all market participants benefit, and some are worse off. Loss sharing rules and their interaction with market network structure affect who are winners and...