We estimate the importance of household liquidity for the effect of the Car Allowance Rebate System (CARS) on vehicle transactions. We measure the average program impact by comparing households with “clunkers” eligible for CARS to households with similar vehicles that are ineligible. The liquidity provided by CARS contributed to its larger than anticipated take-up. Clunkers with existing loans,...

A life-cycle model with equilibrium default in which consumers with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform and other counterfactual reforms. The calibrated model indicates that the 2005 bankruptcy reform achieves its goal of reducing the number of bankruptcy filings, as seen in the data, but at the cost of loss in social welfare. The creditor-fr...

We develop a model in which boundedly rational agents apply technical and fundamental analysis to identify trading signals in two different speculative markets. Whether an agent trades and, if so, in which market with which strategy depends on profit considerations. As it turns out, an ongoing evolutionary competition between the trading strategies causes complex price dynamics which closely re...

We propose a model in which firms compete to attract better managers by using corporate governance as part of an optimal executive compensation scheme. Higher governance decreases the cost of taking disciplinary actions against managers, but when managerial talent is scarce, competition among firms to attract better managers implies that firms under-invest in governance. The reason is that mana...

This paper empirically evaluates the effects of NASDAQ’s $1-minimum-bid-price threshold (known as the one-dollar rule) as part of its listing maintenance criteria. Even though this controversial rule was introduced as early as in September 1991, it remained unexplored by academic research. Empirical evidence compiled in this study suggests that the implementation of this one-dollar rule is just...

This paper studies a dynamic network economy where risk averse traders trade multi-laterally over the counter but cannot commit to fulfill their short positions. We show that, although the level of trade is below the first-best, bilateral clearing with collateral can provide an allocation superior to those without collateral. However, with use of collateral, the optimal bilateral clearing contr...

I document the profits on a trade that is long the old 30-year Treasury bond and short the new 30-year Treasury bond, and is rolled over every auction cycle from June 1995 to November 1999. Despite the systematic convergence of the spread over the auction cycle, the average profits are close to zero. The difference in repo-market financing rates between the two bonds is a significant cost of ca...

The severity of banking crises increases with disinformation about the losses banks incur in making politically directed loans and about the budgetary costs to the government of standing ready to absorb these losses increases. When (as it eventually must) such disinformation begins to lose credibility, silent runs test the government’s commitment to supporting its insolvent banks. An open banki...

This study provides an intraday analysis of Exchange Traded Fund markets. We investigate trading implications surrounding the open and close, and compare price discovery and liquidity in a multi-market trading framework. In addition, we test whether the difference of ETFs with regard to market maker inventory management causes intraday spread patterns to differ from those of the underlying secu...

This paper investigates the impact of price limits on the Brazilian futures markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the São Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. The r...