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Tranching, CDS and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes

Fostel, Ana; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2011

-2009. We study the effect of leverage, tranching, securitization and CDS on asset prices in a general equilibrium model with … collateral. We show why tranching and leverage tend to raise asset prices and why CDS tend to lower them. This may seem puzzling …, since it implies that creating a derivative tranche in the securitization whose payoffs are identical to the CDS will raise …

Persistent link: https://www.econbiz.de/10009207365

Tranching, CDS and Asset Prices: How Financial Innovation Can Cause Bubbles and Crashes

Fostel, Ana; Geanakoplos, John - Cowles Foundation for Research in Economics, Yale University - 2011

2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterwards. This may seem … puzzling, since it implies that creating a derivative tranche in the securitization whose payoffs are identical to the CDS will … raise the underlying asset price while the CDS outside the securitization lowers it. The resolution of the puzzle is that …

Persistent link: https://www.econbiz.de/10009251217

Notations et écarts de rentabilité : le marché français avant l'euro.

Merli, Maxime; Alexandre, Hervé - Université Paris-Dauphine - 2003

The main task of this paper is to confront two classical measures of default risk of the issuer, the rating and the …

Persistent link: https://www.econbiz.de/10009002004

Notations et écarts de rentabilité : le marché français avant l'euro

Merli, Maxime; Alexandre, Hervé - Université Paris-Dauphine (Paris IX) - 2003

The main task of this paper is to confront two classical measures of default risk of the issuer, the rating and the …

Persistent link: https://www.econbiz.de/10010707346

Why is Long-Horizon Equity Less Risky? A Duration-based Explanation of the Value Premium

Lettau, Martin; Wachter, Jessica - C.E.P.R. Discussion Papers - 2005

This paper proposes a dynamic risk-based model that captures the high expected returns on value stocks relative to growth stocks, and the failure of the capital asset pricing model to explain these expected returns. To model the difference between value and growth stocks, we introduce a...

Persistent link: https://www.econbiz.de/10005504287

Euler Equation Errors

Lettau, Martin; Ludvigson, Sydney - C.E.P.R. Discussion Papers - 2005

Among the most important pieces of empirical evidence against the standard representative agent, consumption-based asset pricing paradigm are the formidable unconditional Euler equation errors the model produces for cross-sections of asset returns. Here we ask whether calibrated leading asset...

Persistent link: https://www.econbiz.de/10005504372

Expected Returns and Expected Dividend Growth

Lettau, Martin; Ludvigson, Sydney - C.E.P.R. Discussion Papers - 2002

We develop a consumption-based present value relation that is a function of future dividend growth. Using data on aggregate consumption and measures of the dividend payments from aggregate wealth, we show that changing forecasts of dividend growth make an important contribution to fluctuations...

Persistent link: https://www.econbiz.de/10005504785

Speculative Behavior and Heterogeneous Expectations: Theory and Evidence

Park, Cheolbeom - Department of Economics, National University of Singapore - 2002

This paper demonstrates that the optimal willingness to pay for a stock is the payoff from holding the stock for one period when investors have different expectations, and that the willingness to pay can be represented as the sum of the expected present value of future dividends and the expected...

Persistent link: https://www.econbiz.de/10005518271

Asset Prices, Heterogeneous Expectations, and Limited Short Sales

Park, Cheolbeom - Department of Economics, National University of Singapore - 2003

This paper extends the Harrison-Kreps model by allowing limited short sales. The main results of this paper are: (1) investors pursue short-term gains when perceiving heterogeneous expectations; (2) important properties of the equilibrium price in the Harrison-Kreps model still hold even when...

Persistent link: https://www.econbiz.de/10005518303

Actifs financiers et theorie de la consommation.

Allard, M.; Bronsard, C.; Gourieroux, C. - Centre Interuniversitaire de Recherche en Économie … - 1996

Dans cet article, pour etendre la theorie du consommateur a ses choix d'epargne et de placements, on utilise a la fois la theorie usuelle, celle des caracteristiques et celle du raisonnement quantitatif. On en deduit un systeme complet de demandes comprenant simultanement les quantites de biens...

Persistent link: https://www.econbiz.de/10005545575