The returns of short-term reversal strategies in equity markets can be interpreted as a proxy for the returns from liquidity provision. Analysis of reversal strategies shows that the expected return from liquidity provision is strongly time-varying and highly predictable with the VIX index....

This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put...

Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a...

This paper makes a case that the global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both have their origins in economic policies followed in a number of countries in the 2000s and in distortions that influenced the transmission of these policies...

How much of carry trade excess returns can be explained by the presence of disaster risk? To answer this question, we propose a simple structural model that includes both Gaussian and disaster risk premia and can be estimated even in samples that do not contain disasters. The model points to a...

We study the functioning and possible breakdown of the interbank market in the presence of counterparty risk. We allow banks to have private information about the risk of their assets. We show how banks' asset risk affects funding liquidity in the interbank market. Several interbank market...