Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77407
Authors: 
Bacchetta, Philippe
Tille, Cédric
van Wincoop, Eric
Year of Publication: 
2011
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper 02/2011
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.
Subjects: 
Asset Pricing
Risk Management
Leverage
JEL: 
E44
G11
G18
Document Type: 
Working Paper

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