Regulating Asset Price Risk
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.
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- Philippe Bacchetta & CÃ©dric Tille & Eric van Wincoop, 2012.
"Self-Fulfilling Risk Panics,"
American Economic Review,
American Economic Association, vol. 102(7), pages 3674-3700, December.
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- Bacchetta, Philippe & Tille, Cédric & Wincoop, Eric, 2011. "Self-Fulfilling Risk Panics," Working Papers 2011-003, Banco Central de Reserva del Perú.
- Philippe Bacchetta & Cédric Tille & Eric van Wincoop, 2010. "Self-Fulfilling Risk Panics," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 10.05, Université de Lausanne, Faculté des HEC, DEEP.
- Philippe Bacchetta & Cédric Tille & Eric van Wincoop, 2010. "Self-Fulfilling Risk Panics," NBER Working Papers 16159, National Bureau of Economic Research, Inc.
- Philippe Bacchetta & Cedric Tille & Eric van Wincoop, 2010. "Self-Fulfilling Risk Panics," IHEID Working Papers 17-2010, Economics Section, The Graduate Institute of International Studies.
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