Regulating Asset Price Risk

Philippe Bacchetta, Cédric Tille and Eric van Wincoop

No 11-04, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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 nancial panic. We show that a policy that discourages balance sheet risk reduces the magnitude of nancial 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: 11 pages
Date: 2011-01
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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:chf:rpseri:rp1104

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