• xmlui.mirage2.page-structure.header.title
    • français
    • English
  • Help
  • Login
  • Language 
    • Français
    • English
View Item 
  •   BIRD Home
  • DRM (UMR CNRS 7088)
  • DRM : Publications
  • View Item
  •   BIRD Home
  • DRM (UMR CNRS 7088)
  • DRM : Publications
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

Browse

BIRDResearch centres & CollectionsBy Issue DateAuthorsTitlesTypeThis CollectionBy Issue DateAuthorsTitlesType

My Account

LoginRegister

Statistics

Most Popular ItemsStatistics by CountryMost Popular Authors
Thumbnail

Risk Shifting, Asset Bubbles, and Self-fulfilling Crises

Challe, Edouard; Ragot, Xavier (2005), Risk Shifting, Asset Bubbles, and Self-fulfilling Crises, AFFI 2005 (Association Française de Finance), 2005-12, Paris, France

View/Open
Challe_affi2005.PDF (205.2Kb)
Type
Communication / Conférence
Date
2005
Conference title
AFFI 2005 (Association Française de Finance)
Conference date
2005-12
Conference city
Paris
Conference country
France
Pages
28
Metadata
Show full item record
Author(s)
Challe, Edouard
Ragot, Xavier cc
Abstract (EN)
Financial crisis are often associated with an endogenous credit reversal fol- lowed by a fall in asset prices and failures of financial institutions. To account for this sequence of events, this paper constructs a model where the excess risk-taking of portfolio investors leads to a bubble in asset prices (in the spirit of Allen and Gale, Economic Journal, 2000), and where the supply of credit to these investors is endogenous. First, we show that changes in the composition and riskiness of investors' portfolio as total lending varies may cause the ex ante return on loans to increase with the amount of total lending, thereby creating the potential for multiple (Pareto-ranked) equilibria associated with different levels of lending, asset prices, and output. We then embed this mechanism into a 3-period model where the low-lending equilibrium is selected with positive probability at the intermediate date. This event is associated with a inefficient liquidity dry-up, a market crash, and widespread failures of borrowers.
Subjects / Keywords
Financial crises; Credit market imperfections; self-fulfilling expectations
JEL
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
G33 - Bankruptcy; Liquidation

Related items

Showing items related by title and author.

  • Thumbnail
    Incomplete Markets and the Output-Inflation Tradeoff 
    Ragot, Xavier; Challe, Edouard; Algan, Yann (2008) Communication / Conférence
  • Thumbnail
    Incomplete Markets and the Output-Inflation Tradeoff 
    Challe, Edouard; Algan, Yann; Ragot, Xavier (2011) Article accepté pour publication ou publié
  • Thumbnail
    Instantaneous self-fulfilling of long-term prophecies on the probabilistic distribution of financial asset values 
    Lasry, Jean-Michel; Lions, Pierre-Louis (2007) Article accepté pour publication ou publié
  • Thumbnail
    Was the European sovereign crisis self-fulfilling? Empirical evidence about the drivers of market sentiments 
    Bruneau, Catherine; Delatte, Anne-Laure; Fouquau, Julien (2014) Article accepté pour publication ou publié
  • Thumbnail
    Public Spending Shocks in a Liquidity Constrained Economy 
    Ragot, Xavier; Challe, Edouard (2007-12) Communication / Conférence
Dauphine PSL Bibliothèque logo
Place du Maréchal de Lattre de Tassigny 75775 Paris Cedex 16
Phone: 01 44 05 40 94
Contact
Dauphine PSL logoEQUIS logoCreative Commons logo