Target Date Funds (TDFs) provide retirement investors, many of whom are unsophisticated or inattentive, with age-appropriate exposures to different asset classes like stocks and bonds. To maintain exposures, TDFs trade actively against market returns, buying stock funds when the stock market...

This paper reviews recent developments in macro and finance on the relationship between financial risk and the real economy. We focus on three specific topics: the term structure of uncertainty, time variation - and specifically the long-term decline - in the variance risk premium, and time...

We develop a theory of stock-market crashes based on differences of opinion among investors. Because of short-sales constraints, bearish investors do not initially participate in the market and their information is not revealed in prices. However, if other, previously-bullish investors have a...

We document regime change in the U.S. Treasury market post-Global Financial Crisis (GFC): dealers switched from a net short to a net long position in the Treasury market. We first derive bounds on Treasury yields that account for dealer balance sheet costs, which we call the net short and net...

After remaining close to 1 US Dollar since its inception in November 2020, the algorithmic stablecoin UST crashed in the two weeks of May 9th to May 15th, 2022, leading to a price collapse of the underlying LUNA token and the erasure of more than 50 Billion U.S. Dollar or 90% in market value

In competitive capital markets, risky debt claims that offer high yields in good times have high systematic risk exposure in bad times. We apply this idea to bank risk measurement. We find that banks with high accounting return on equity (ROE) prior to a crisis have higher systematic tail risk...

This paper outlines a set of financial policies that can help make financial crises less likely in emerging market countries. To justify these policies, the paper first explains what a financial crisis is, the factors that promote a financial crisis and the dynamics of a financial crisis. It...

Although internal policy mismanagements can be cited in most recent emerging market crises, they seldom account fully for the severity of these crises. The reluctance of international investors to provide the resources that would limit the extent of the reversal almost invariably plays a key...

Regulation consists of rulemaking and enforcement. Economic theory offers two complementary rationales for regulating financial institutions. Altruistic public-benefits theories treat rules as governmental instruments for increas- ing fairness and efficiency across society as a whole....

In this paper we examine closely the financial events following the Mexican peso devaluation to uncover new lessons about the nature of financial crises. We explore the question of why, during 1995, some emerging markets were hit by financial crises while others were not. To this end, we ask...