We employ a model of leverage-induced explosive behavior in financial markets to develop a measure of financial market instability. Specifically, we derive a quantitative condition for how large levered investors can become relative to the whole market before the demand curve for securities...

We provide robust evidence of deviations from the covered interest rate parity (CIP) relation since the onset of the financial crisis in August 2007. The CIP deviations exist with respect to several different dollar-denominated interest rates and exchange rate pairings of the dollar vis-à-vis...

The London Interbank Offered Rate (LIBOR) is a widely used indicator of funding conditions in the interbank market. As of 2013, LIBOR underpins more than $300 trillion of financial contracts, including swaps and futures, in addition to trillions more in variable-rate mortgage and student loans....

We propose a new class of dynamic order book models that allow us to 1) study episodes of extreme low liquidity and 2) unite liquidity and volatility in one framework through which their joint dynamics can be examined. Liquidity and volatility in the U.S. Treasury securities market are analyzed...

As the economic disruptions associated with the COVID-19 pandemic increased in March 2020, there was a global dash-for-cash by investors. This selling pressure occurred across advanced sovereign bond markets and caused a deterioration in market functioning, leading to central bank interventions....

We examine sources of systemic risk (threshold size, complexity, and interconnectedness) with factors constructed from equity returns of large financial firms, after accounting for standard risk factors. From the factor loadings and factor returns, we estimate the implicit government subsidy for...