Regulating Asset Price Risk
- Bacchetta, Philippe Faculty of Business and Economics, University of Lausanne, Extranef, 1015 Lausanne, Switzerland.
- Tille, Cédric Department of Economics, Graduate Institute, PO Box 136, 1211 Geneva 21, Switzerland.
- Wincoop, Eric van Department of Economics, University of Virginia, PO Box 400182, Charlottesville, VA 22904-4182.
Published in:
- American Economic Review. - American Economic Association. - 2011, vol. 101, no. 3, p. 410-412
English
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.
- Language
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- English
- Open access status
- green
- Identifiers
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- DOI 10.1257/aer.101.3.410
- ISSN 0002-8282
- Persistent URL
- https://sonar.ch/global/documents/150725
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