Firm financing is the link between financial markets and the real economy. In this paper, we investigate how firm financing depends on the state of the economy. Using Compustat data, we look at the external financing decisions of firms over the business cycle. We find that firm financing is...

This paper studies banks' motives for trading in interest rate derivatives. It uses data from annual reports and regulatory filings to measure major market participants' derivatives portfolios, as well as their non-derivative exposure to interest rate risk. Risk exposures with and without...

We document that the risks and pre-fee returns of broad hedge fund indices can be accurately matched with simple equity index put writing strategies, which provide monthly liquidity and complete transparency over their state-contingent payoff profiles. This nonlinear risk exposure combines with...

This paper investigates the spectacular rise and fall of structured finance. The essence of structured finance activities is the pooling of economic assets like loans, bonds, and mortgages, and the subsequent issuance of a prioritized capital structure of claims, known as tranches, against these...