Dealers, who strategically supply liquidity to traders, are subject to both liquidity and adverse selection costs. While liquidity costs can be mitigated through inter-dealer trading, individual dealers' private motives to acquire information compromise inter-dealer market liquidity. Post-trade...

Market participants and policymakers alike were surprised by the large, prolonged dislocations in credit market arbitrage trades during the second half of 2015 and the first quarter of 2016. In this paper, we examine three explanations proposed by market participants: increased idiosyncratic...

We argue that post-crisis bank regulation can explain large, persistent deviations from parity on basis trades requiring leverage. Documenting the financing cost and balance sheet impact on a broad array of basis trades for regulated institutions, we show that the implied return on equity on...

We build a model of a financial intermediary, in the tradition of Diamond and Dybvig (1983), and show that allowing the intermediary to impose redemption fees or gates in a crisis - a form of suspension of convertibility - can lead to preemptive runs. In our model, a fraction of investors...

In recent years, U.S. banks have increasingly relied on deposits from financial intermediaries, especially money market funds (MMFs), which collect funds from large institutional investors and lend them to banks. In this paper, we show that intermediation through MMFs allows investors to limit...

Two activists with correlated private positions in a firm's stock, trade sequentially before simultaneously exerting effort that determines the firm's value. We document the existence of a novel linear equilibrium in which an activist's trades have positive sensitivity to her block size, but...

Standard factor pricing models do not capture well the common time-series or cross-sectional variation in average returns of financial stocks. We propose a five-factor asset pricing model that complements the standard Fama and French (1993) three-factor model with a financial sector ROE factor...

Can the macroeconomic effects of credit supply shocks be large even when a small share of firms are credit-constrained? I use U.K. firm-level accounting data to discipline a heterogeneous-firm model in which the interaction between real and financial frictions induces precautionary cash...

This paper studies the link between firm-level financial constraints and employment decisions, as well as the implications for the propagation of aggregate shocks. I exploit the idea that, when the financial constraint binds, a firm adjusts its employment in response to cash flow shocks. I...