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Leverage Bubbles

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Abstract

This paper investigates the relation between liquidity and asset prices. It shows that, when banks balance sheets are marked to market and banks are targeting a financial leverage level - a situation similar to current environment - formation of Leverage Bubble phenomenon and suggests a new regulation rule based on a Dynamic Leverage Ratio (DLR) rule

Suggested Citation

  • Fares Triki, 2009. "Leverage Bubbles," Documents de travail du Centre d'Economie de la Sorbonne 09039, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:09039
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2009/09039.pdf
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    More about this item

    Keywords

    Financial crises; rational bubbles; dynamic leverage ratio; mark to market accounting; asset pricing; macroprudential regulation; market liquidity;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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