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; Stavros Panageas; Jianfeng Yu
Version: View help for Version V1
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Project Citation:
Gârleanu, Nicolae, Panageas, Stavros, and Yu, Jianfeng. Replication data for: Financial Entanglement: A Theory of Incomplete Integration, Leverage, Crashes, and Contagion. Nashville, TN: American Economic Association [publisher], 2015. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E112947V1
Project Description
Summary:
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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:
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D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
G11 Portfolio Choice; Investment Decisions
G12 Asset Pricing; Trading Volume; Bond Interest Rates
G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G35 Payout Policy
D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
G11 Portfolio Choice; Investment Decisions
G12 Asset Pricing; Trading Volume; Bond Interest Rates
G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G35 Payout Policy
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