Regulating Asset Price Risk

Philippe Bacchetta, Cédric Tille and Eric van Wincoop

No 02-2011, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

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.

Keywords: Asset Pricing; Risk Management; Leverage. (search for similar items in EconPapers)
JEL-codes: E44 G11 G18 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2011-01
New Economics Papers: this item is included in nep-bec, nep-cba, nep-mac, nep-reg and nep-rmg
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Related works:
Journal Article: Regulating Asset Price Risk (2011)
Working Paper: Regulating Asset Price Risk (2011)
Working Paper: Regulating Asset Price Risk (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp02-2011

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