Rescues Violating the German Constitution: The Federal Court Decides on a Theory of Finance
The Federal German Constitutional Court has made it clear that it considers the OMT program to be in violation of the ECB’s mandate. This paper argues...
Moral Hazard and Debt Maturity
We present a model of the maturity of a bank’s uninsured debt. The bank borrows funds and chooses afterwards the riskiness of its assets. This moral...
Model risk and the implications for risk management, macroprudential policy, and financial regulations
Risk forecasting is central to financial regulations, risk management, and macroprudential policy. This column raises concerns about the reliance on...
Attracting investor attention through advertising
Review of Financial Studies, 27 (6). pp. 1797-1829.
How to lose money in derivatives: examples from hedge funds and bank trading departments
What makes futures hedge funds fail? The common ingredient is over betting and not being diversified in some bad scenarios that can lead to disaster...
The Economics of Collateral
In this paper we study how the use of collateral is evolving under the influence of regulatory reform and changing market structure. We start with a...
The Economics of Collateral
In this paper we study how the use of collateral is evolving under the influence of regulatory reform and changing market structure. We start with a...
Model Risk of Risk Models
This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models...
Activist Funds, Leverage, and Procyclicality
We provide a theoretical framework to study blockholder activism by funds who compete for investor flow. In our model, activists are intrinsically...
The Fallibility of the Efficient Market Theory: a new paradigm
The efficient market theory has failed to explain the market behavior and asset pricing of recent years. A new model that incorporates the principal...
Ties that Bind: How business connections affect mutual fund activism
We investigate how business ties with portfolio firms influence mutual funds’ proxy voting using a comprehensive dataset spanning 2003 to 2011. In...
A resolvable bank
Making banks resolvable is a key component of the regulatory reform programme enacted in response to the crisis. A resolvable bank is one that is...
Competition and Credit Control
The Bank of England’s ‘consultative document’ on Competition and Credit Control was published on May 14th, 1971. It was a landmark occasion...
Diversification and Financial Stability
This paper contributes to a growing literature on the pitfalls of diversification by shedding light on a new mechanism under which, full risk...