Chen, Zhuo He, Zhiguo Wei, Wei
Published in
Annual Review of Financial Economics
Margin—collateral or funds that investors deposit with their counterparties—is a crucial component of the practice of borrowing money to fund investment. While margin offers the potential for enhanced returns, it also exposes investors to the risk of escalated losses, thereby necessitating stringent regulatory oversight. Delving into the regulatory...
Kempf, Elisabeth Tsoutsoura, Margarita
Published in
Annual Review of Financial Economics
We review an empirical literature that studies how political polarization affects financial decisions. We first discuss the degree of partisan segregation in finance and corporate America, the mechanisms through which partisanship may influence financial decisions, and the available data sources used to infer individuals’ partisan leanings. We then...
Howell, Sabrina T.
Published in
Annual Review of Financial Economics
Governments' powerful imperative to support innovation has only grown more urgent amid slowing growth in the developed world and a rapidly changing climate. In this review, I describe the important role that economics and finance play in rigorously evaluating innovation policy. I organize government intervention in innovation into arenas, agendas, ...
Daniel, Kent Klos, Alexander Rottke, Simon
Published in
Annual Review of Financial Economics
We review the academic findings from psychology and economics on disagreement—specifically, the effect of disagreement on asset prices. We discuss measurement of disagreement and how disagreement, coupled with constraints on short selling, can sideline pessimistic investors and result in overpricing. We review the literature on short selling in fin...
Caballero, Ricardo J. Simsek, Alp
Published in
Annual Review of Financial Economics
In this article, we summarize empirical research on the interaction between monetary policy and asset markets and review our previous theoretical work that captures these interactions. We present a concise model in which monetary policy impacts the aggregate asset price, which in turn influences economic activity with lags. In this context, the fol...
Greenwood, Robin Hanson, Samuel Vayanos, Dimitri
Published in
Annual Review of Financial Economics
We survey the growing literature emphasizing the role that supply and demand forces play in shaping the term structure of interest rates. Our starting point is the Vayanos and Vila model of the term structure of default-free bond yields, which we present in both discrete and continuous time. The key friction in the model is that the bond market is ...
Bolton, Patrick Chen, Hui Wang, Neng
Published in
Annual Review of Financial Economics
The fact that internal liquidity is a key source of corporate funding puts the marginal value of cash at the center of a variety of firm decisions, including investment, payout, financing, savings, and risk management policies. The marginal value of cash is inherently a dynamic concept, because a firm facing financing frictions has to be forward-lo...
Infante, Sebastian Kim, Kyungmin Orlik, Anna Silva, André F. Tetlow, Robert
Published in
Annual Review of Financial Economics
This article reviews the literature examining how the introduction of a retail central bank digital currency (CBDC) would affect a modern economy, focusing on the implications for the banking sector and for financial stability. A CBDC can improve welfare by reducing financial frictions, countering market power in deposit markets, encouraging financ...
Acharya, Viral V. Jager, Maximilian Steffen, Sascha
Published in
Annual Review of Financial Economics
Over the past two decades, banks have increasingly focused on offering contingent credit in the form of credit lines as a primary means of corporate borrowing. We review the existing body of research regarding the rationales for banks’ provision of liquidity insurance in the form of credit lines, their significance in managing corporate liquidity, ...
Hansen, Lars Peter Khorrami, Paymon Tourre, Fabrice
Published in
Annual Review of Financial Economics
We compare and contrast production economies exposed to long-run uncertainty with investors that have possibly different preferences and/or access to financial markets. We study the macroeconomic and asset-pricing properties of these models, identify common features, and highlight areas where these models depart from each other. Our framework allow...
