Abstract

http://ssrn.com/abstract=1762761
 
 

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Regulating Asset Price Risk


Philippe Bacchetta


University of Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Cédric Tille


Graduate Institute of International and Development Studies (HEI)

Eric Van Wincoop


University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

January 1, 2011

Swiss Finance Institute Research Paper No. 11-04

Abstract:     
There has been a long debate about whether speculators are stabilizing or not. We consider a model where speculators have a stabilizing role in normal times, but may also provoke large risk panics. The very feature that makes arbitrageurs liquidity providers in normal times, namely their tolerance of risk, enables a large increase in asset price risk during a financial panic. We show that a policy that discourages balance sheet risk reduces the magnitude of financial panics, as well as asset price risk in both normal and panic states.

Number of Pages in PDF File: 11

Keywords: Asset Pricing, Risk Management, Leverage

JEL Classification: E44, G11, G18

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Date posted: February 17, 2011 ; Last revised: February 23, 2011

Suggested Citation

Bacchetta, Philippe and Tille, Cédric and van Wincoop, Eric, Regulating Asset Price Risk (January 1, 2011). Swiss Finance Institute Research Paper No. 11-04. Available at SSRN: http://ssrn.com/abstract=1762761 or http://dx.doi.org/10.2139/ssrn.1762761

Contact Information

Philippe Bacchetta (Contact Author)
University of Lausanne ( email )
Faculty of Business and Economics
Extranef
1015 Lausanne
Switzerland
HOME PAGE: http://www.hec.unil.ch/pbacchetta/
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Cedric Tille
Graduate Institute of International and Development Studies (HEI) ( email )
PO Box 136
Geneva, CH-1211
Switzerland
HOME PAGE: http://sites.google.com/site/cedrictilleheid/home
Eric Van Wincoop
University of Virginia (UVA) - Department of Economics ( email )
Rouss Hall 114
P.O. Box 400182
Charlottesville, VA 22904-4182
United States
804-924-3997 (Phone)
804-982-2904 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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