Defeasance of Control Rights
We analyze one frequent clause in bonds, covenant defeasance. Covenant defeasance allows the issuer to remove the bond’s covenants by placing the...
Walking Wounded or Living Dead? Making Banks Foreclose Bad Loans
Because of limited liability, insolvent banks have an incentive to roll over bad loans, in order to hide losses and gamble for resurrection, even...
The U.S. political brawl over the causes of the crisis. Some Critical Comments
The Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States was released on January 27 2011...
Preferred-Habitat Investors and the US Term Structure of Real Rates
We estimate structurally a model of the term structure of interest rates that is consistent with no arbitrage but allows for demand pressures. The...
Second-Order Approximation of Dynamic Models with Time-Varying Risk
This paper provides first and second-order approximation methods for the solution of non-linear dynamic stochastic models in which the exogenous state...
Bank Bailout Menus
Bailing out banks requires overcoming debt overhang as well as dealing with adverse selection with respect to the quality of banks’ balance sheets, in...
Bank Bailout Menus
Bailing out banks requires overcoming debt overhang as well as dealing with adverse selection with respect to the quality of banks’ balance sheets, in...
Trading and Voting in Distressed Firms
We investigate the effect of the ability of “non-traditional” funds to short-sell the equity of their debtors. This enables the funds to vote on the...
Trading Frenzies and Their Impact on Real Investment
We study a model where a capital provider learns from the price of a firm’s security in deciding how much capital to provide for new investment. This...
Micro Frictions, Asset Pricing, and Aggregate Implications
We use asset pricing insights to study importance of micro-level frictions for aggregate quantities. In our model, the relevant stochastic variable is...
Stock prices under pressure: How tax and interest rates drive returns at the turn of the tax year
We show that the level of interest rates determines the magnitude of mispricing at the turn of the tax year, as investors face the trade-off between...
Bond Market Clienteles, the Yield Curve and the Optimal Maturity Structure of Government Debt
We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at...
Fund Flows and Asset Prices: A Baseline Model
We study flows between investment funds and their effects on asset prices in a simple twoperiod version of Vayanos and Woolley (2010, VW). As in VW...
An institutional theory of momentum and reversal
We propose a rational theory of momentum and reversal based on delegated portfolio management. Flows between investment funds are triggered by changes...
Balance Sheet Capacity and Endogenous Risk
Banks operating under Value-at-Risk constraints give rise to a well-defined aggregate balance sheet capacity for the banking sector as a whole that...
