We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at different lifecycle stages in an ...overlapping-generations economy. An optimal maturity structure exists in the absence of distortionary taxes and induces efficient intergenerational risksharing. If agents are more risk-averse than log, then an increase in the long-horizon clientele raises the price and optimal supply of long-term bonds—effects that we also confirm empirically in a panel of OECD countries. Moreover, under the optimal maturity structure, catering to clienteles is limited and long-term bonds earn negative expected excess returns.
ESBies Brunnermeier, Markus K.; Langfield, Sam; Pagano, Marco ...
Economic policy,
04/2017, Letnik:
32, Številka:
90
Journal Article
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The euro crisis was fuelled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a euro area-wide safe ...asset without joint liability, would help to resolve these problems. We make three contributions. First, numerical simulations show that ESBies with a subordination level of 30% would be as safe as German bunds and would increase safe asset supply. Second, a model shows how, when and why the two features of ESBies – diversification and seniority – can weaken the diabolic loop and its diffusion across countries. Third, we propose how to create ESBies, starting with limited issuance by public or private-sector entities.
We develop a search-based model of asset trading, in which investors of different horizons can invest in two assets with identical payoffs. The asset markets are partially segmented: buyers can ...search for only one asset, but can decide which one. We show the existence of a “clientele’’ equilibrium where all short-horizon investors search for the same asset. This asset has more buyers and sellers, lower search times, and trades at a higher price relative to its identical-payoff counterpart. The clientele equilibrium dominates the one where all investor types split equally across assets, implying that the concentration of liquidity is socially desirable.
We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. ...We show that persuasion bias implies the phenomenon of social influence, whereby one's influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals' opinions over a multidimensional set of issues converge to a single "left-right" spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications.
This paper studies a dynamic model of a financial market with a strategic trader. In each period the strategic trader receives a privately observed endowment in the stock. He trades with competitive ...market makers to share risk. Noise traders are present in the market. After receiving a stock endowment, the strategic trader is shown to reduce his risk exposure either by selling at a decreasing rate over time or by selling and then buying back some of the shares sold. When the time between trades is small, the strategic trader reveals the information regarding his endowment very quickly.
We study market efficiency in an infinite-horizon model with a monopolistic insider. The insider can trade with competitive market makers and noise traders, and observes privately the expected growth ...rate of asset dividends. In the absence of the insider, this information would be reflected in prices only after a long series of dividend observations. Thus, the insider's information is "long-lived." Surprisingly, however, the monopolistic insider chooses to reveal her information very quickly, within a time converging to zero as the market approaches continuous trading. Although the market converges to strong-form efficiency, the insider's profits do not converge to zero.
This paper studies a dynamic model of a financial market with N strategic agents. Agents receive random stock endowments at each period and trade to share dividend risk. Endowments are the only ...private information in the model. We find that agents trade slowly even when the time between trades goes to 0. In fact, welfare loss due to strategic behaviour increases as the time between trades decreases. In the limit when the time between trades goes to 0, welfare loss is of order 1/N, and not 1/N2 as in the static models of the double auctions literature. The model is very tractable and closed-form solutions are obtained in a special case.
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