We investigate how trading frictions in asset markets affect portfolio choices, asset prices and efficiency. We generalize the search-theoretic model of financial intermediation of Duffie, Gârleanu and Pedersen (2005) to allow for more general preferences and idiosyncratic shock structure, unrestricted portfolio choices, aggregate uncertainty and entry of dealers. With a fixed measure of dealer...

Monetary policy has pursued the concept of inflation targeting. This has been implemented in many countries. Here interest rates are supposed to respond to an inflation gap and output gap. Despite long term continuing growth of the world financial assets, recently, monetary policy, in particular in the U.S. after the subprime credit crisis, was challenged by severe disruptions and a meltdown of...

I define a notion of completitive equilibrium for asset markets where assets are heterogeneous and traders have heterogenoeus information about them. I then apply this notion to a model of distressed sales under asymmetric information and examine whether it can account for fire sales: sharp drops in prices when distressed agents need to sell assets. Standard models of asymmetric information wit...

The widely used short-term debt such as overnight repos and commercial paper is regarded as one of the main sources of instability leading to the distress of many …nancial institutions during the …nancial crisis of 2007-2008. What explains the popularity of shortterm debt in …nancing asset market investments? Geanakoplos (2010) presents a dynamic model of the joint equilibrium of asset markets ...

Emerging markets provide a formidable challenge to current asset pricing theory. The reason that emerging market do not obey standard asset pricing paradigms can be traced to the lack of complete market integration of many of these markets. Importantly, to understand both the cross-section of expected returns as well as the evolution of expected returns through time in these markets, it is nece...

This paper studies competitive equilibria of economies where assets are heterogeneous and traders have heterogeneous information about them. Markets are defined by a price and a procedure for clearing trades and any asset can in principle be traded in any market. Buyers can use their information to impose acceptance rules which specify which assets they are willing to trade in each market. The ...

We develop a noisy rational expectations equilibrium model of asset prices with informed and uninformed investors. In our model, informed investors affect the asset’s dividend payoff through their investment, thus have coordination incentives. They receive heterogenous private signals about the asset’s fundamental value and observe its price. The uninformed investors observe only the price. The...