Speculation and Hedging in Segmented Markets
Itay Goldstein,Yan Li,Liyan Yang +2 more
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TLDR
In this paper, the authors analyze a model where traders have different trading opportunities and learn information from prices, and suggest that adding more informed traders may reduce price informativeness and therefore provide a source for learning complementarities leading to multiple equilibria and price jumps.Abstract:
We analyze a model where traders have different trading opportunities and learn information from prices The difference in trading opportunities implies that different traders may have different trading motives when trading in the same market -- some trade for speculation and others for hedging -- and thus they may respond to the same information in opposite directions This implies that adding more informed traders may reduce price informativeness and therefore provides a source for learning complementarities leading to multiple equilibria and price jumps Our model is relevant to various realistic settings and helps to understand a variety of modern financial marketsread more
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Journal ArticleDOI
A Treatise, on Money
TL;DR: Keynes' "Treatise on money" as mentioned in this paper is the most important work on monetary theory published since the War, certainly in England and probably throughout the world, and is divided into seven books.
Book
Credit Default Swaps: A Survey
TL;DR: In this article, a survey of the literature on credit default swaps (CDS) is presented, with a focus on the role of fundamental credit risk factors, liquidity and counterparty risk.
Posted Content
Illiquidity Contagion and Liquidity Crashes
Giovanni Cespa,Thierry Foucault +1 more
TL;DR: In this article, a self-reinforcing positive relationship between price informativeness and liquidity is shown to be a source of fragility, and a small drop in the liquidity of one asset can, through a feedback loop, result in a very large drop in market liquidity and prices of other assets.
Journal ArticleDOI
Illiquidity Contagion and Liquidity Crashes
Giovanni Cespa,Thierry Foucault +1 more
TL;DR: In this paper, a self-reinforcing positive relationship between price informativeness and liquidity is shown to be a source of fragility, and a small drop in the liquidity of one asset can, through a feedback loop, result in a very large drop in market liquidity and prices of other assets.
Book
The Empirical Analysis of Liquidity
TL;DR: The literature on liquidity and asset pricing demonstrates that both average liquidity cost and liquidity risk are priced, liquidity enhances market efficiency, and liquidity strengthens the arbitrage linkage between related markets as discussed by the authors.
References
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On the Impossibility of Informationally Efficient Markets
TL;DR: In this paper, the authors propose a model in which there is an equilibrium degree of disequilibrium: prices reflect the information of informed individuals (arbitrageurs) but only partially, so that those who expend resources to obtain information do receive compensation.
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Information and the Cost of Capital
Maureen O'Hara,David Easley +1 more
TL;DR: In this paper, the authors investigate the role of information in affecting a firm's cost of capital using a multi-asset rational expectations model and show that differences in the composition of information between public and private information affect the cost of investment, with investors demanding a higher return to hold stocks with greater private information.
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Liquidity and Leverage
Tobias Adrian,Hyun Song Shin +1 more
TL;DR: In a financial system in which balance sheets are continuously marked to market, asset price changes appear immediately as changes in net worth, eliciting responses from financial intermediaries who adjust the size of their balance sheets as mentioned in this paper.
Book
A Treatise on Money
TL;DR: The applied theory of money and its fluctuation is discussed in detail in this paper, with a focus on the rate of investment and its changes over the last few decades, as well as the relation of central banks to one another.
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