Replication data for: Financial Entanglement: A Theory of Incomplete Integration, Leverage, Crashes, and Contagion

Principal Investigator(s): View help for Principal Investigator(s) Nicolae Gârleanu; Jianfeng Yu; Stavros Panageas

Name	File Type	Size	Last Modified
data			08/02/2019 09:56:PM
LICENSE.txt	text/plain	14.6 KB	08/02/2019 05:56:PM

Project Citation:

Project Description

Summary: We propose a unified model of limited market integration, asset-price determination, leveraging, and contagion. Investors and firms are located on a circle, and access to markets involves participation costs that increase with distance. Due to a complementarity between participation and leverage decisions, the equilibrium may exhibit diverse leverage and participation choices across investors, although investors are ex ante identical. Small changes in market-access costs can cause a change in the type of equilibrium, leading to discontinuous price changes, deleveraging, and portfolio-flow reversals. Moreover, the market is subject to contagion—an adverse shock to investors in some locations affects prices everywhere. (JEL D83, G11, G12, G32, G35)

Scope of Project

JEL Classification:
      D83 Search • Learning • Information and Knowledge • Communication • Belief • Unawareness
      G35 Payout Policy
      G32 Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill
      G11 Portfolio Choice • Investment Decisions
      G12 Asset Pricing • Trading Volume • Bond Interest Rates

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Published Versions

V1 [2019-08-02]

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