Loading…

Fire Sales in a Model of Complexity

We present a model of financial crises that stem from endogenous complexity. We conceptualize complexity as banks' uncertainty about the financial network of cross exposures. As conditions deteriorate, cross exposures generate the possibility of a domino effect of bankruptcies. As this happens,...

Full description

Saved in:

Bibliographic Details
Published in:	The Journal of finance (New York) 2013-12, Vol.68 (6), p.2549-2587
Main Authors:	CABALLERO, RICARDO J., SIMSEK, ALP
Format:	Article
Language:	English
Subjects:	Bank assets Bank liquidity Bank markets Banking crises Bankruptcy Banks Complexity Conceptualization Economic crisis Economic models Economic uncertainty Endogenous Externalities Financial crisis Financial risk Flight to quality Legacies Payments Risk Risk exposure Risk management Sales Studies Uncertainty
Citations:	Items that this one cites Items that cite this one
Online Access:	Get full text
Tags:	Add Tag No Tags, Be the first to tag this record!

cited_by	cdi_FETCH-LOGICAL-c5887-6a75185a273c587bc3c8077da7d2a8708eb926df4b99b3ed2eed73ae4dcb1ce83
cites	cdi_FETCH-LOGICAL-c5887-6a75185a273c587bc3c8077da7d2a8708eb926df4b99b3ed2eed73ae4dcb1ce83
container_end_page	2587
container_issue	6
container_start_page	2549
container_title	The Journal of finance (New York)
container_volume	68
creator	CABALLERO, RICARDO J. SIMSEK, ALP
description	We present a model of financial crises that stem from endogenous complexity. We conceptualize complexity as banks' uncertainty about the financial network of cross exposures. As conditions deteriorate, cross exposures generate the possibility of a domino effect of bankruptcies. As this happens, banks face an increasingly complex environment since they need to understand a greater fraction of the financial network to assess their own financial health. Complexity dramatically amplifies banks' perceived counterparty risk, and makes relatively healthy banks reluctant to buy risky assets. The model also features a novel complexity externality.
doi_str_mv	10.1111/jofi.12087
format	article
fullrecord	<record><control><sourceid>jstor_proqu</sourceid><recordid>TN_cdi_proquest_miscellaneous_1466093617</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><jstor_id>42002575</jstor_id><sourcerecordid>42002575</sourcerecordid><originalsourceid>FETCH-LOGICAL-c5887-6a75185a273c587bc3c8077da7d2a8708eb926df4b99b3ed2eed73ae4dcb1ce83</originalsourceid><addsrcrecordid>eNp9kctLw0AQxhdRsFYv3oVALyJE95F95CjF1Fd9oOJx2SQTSE27dTfF9r93a7QHD53LwHy_bxi-QeiY4HMS6mJiq_qcUKzkDuoRnuBYUEF2UQ9jSmOCFd1HB95P8Lo476FBVjuIXkwDPqpnkYnGtoQmslU0tNN5A8u6XR2ivco0Ho5-ex-9ZVevw-v4_nF0M7y8jwuulIyFkZwobqhkYSDzghUKS1kaWVKjJFaQp1SUVZKnac6gpAClZAaSsshJAYr10Wm3d-7s5wJ8q6e1L6BpzAzswmuSCIFTJogM6OAfOrELNwvXaUqESCVOBNtGhV2YJilRJFBnHVU4672DSs9dPTVupQnW61T1OlX9k2qASQd_1Q2stpD69jG7-fOcdJ6Jb63beBIansIlD3rc6bVvYbnRjfvQQjLJ9fvDSGfjIc3E3ZN-Zt-wjo7O</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>1460249181</pqid></control><display><type>article</type><title>Fire Sales in a Model of Complexity</title><source>International Bibliography of the Social Sciences (IBSS)</source><source>JSTOR Archival Journals and Primary Sources Collection</source><source>Wiley-Blackwell Read & Publish Collection</source><creator>CABALLERO, RICARDO J. ; SIMSEK, ALP</creator><creatorcontrib>CABALLERO, RICARDO J. ; SIMSEK, ALP</creatorcontrib><description>We present a model of financial crises that stem from endogenous complexity. We conceptualize complexity as banks' uncertainty about the financial network of cross exposures. As conditions deteriorate, cross exposures generate the possibility of a domino effect of bankruptcies. As this happens, banks face an increasingly complex environment since they need to understand a greater fraction of the financial network to assess their own financial health. Complexity dramatically amplifies banks' perceived counterparty risk, and makes relatively healthy banks reluctant to buy risky assets. The model also features a novel complexity externality.</description><identifier>ISSN: 0022-1082</identifier><identifier>EISSN: 1540-6261</identifier><identifier>DOI: 10.1111/jofi.12087</identifier><identifier>CODEN: JLFIAN</identifier><language>eng</language><publisher>Cambridge: Blackwell Publishing Ltd</publisher><subject>Bank assets ; Bank liquidity ; Bank markets ; Banking crises ; Bankruptcy ; Banks ; Complexity ; Conceptualization ; Economic crisis ; Economic models ; Economic uncertainty ; Endogenous ; Externalities ; Financial crisis ; Financial risk ; Flight to quality ; Legacies ; Payments ; Risk ; Risk exposure ; Risk management ; Sales ; Studies ; Uncertainty</subject><ispartof>The Journal of finance (New York), 2013-12, Vol.68 (6), p.2549-2587</ispartof><rights>2013 American Finance Association</rights><rights>2013 the American Finance Association</rights><rights>Copyright Blackwell Publishers Inc. Dec 2013</rights><lds50>peer_reviewed</lds50><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c5887-6a75185a273c587bc3c8077da7d2a8708eb926df4b99b3ed2eed73ae4dcb1ce83</citedby><cites>FETCH-LOGICAL-c5887-6a75185a273c587bc3c8077da7d2a8708eb926df4b99b3ed2eed73ae4dcb1ce83</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.jstor.org/stable/pdf/42002575$$EPDF$$P50$$Gjstor$$H</linktopdf><linktohtml>$$Uhttps://www.jstor.org/stable/42002575$$EHTML$$P50$$Gjstor$$H</linktohtml><link.rule.ids>314,776,780,27903,27904,33202,33203,58216,58449</link.rule.ids></links><search><creatorcontrib>CABALLERO, RICARDO J.</creatorcontrib><creatorcontrib>SIMSEK, ALP</creatorcontrib><title>Fire Sales in a Model of Complexity</title><title>The Journal of finance (New York)</title><addtitle>The Journal of Finance</addtitle><description>We present a model of financial crises that stem from endogenous complexity. We conceptualize complexity as banks' uncertainty about the financial network of cross exposures. As conditions deteriorate, cross exposures generate the possibility of a domino effect of bankruptcies. As this happens, banks face an increasingly complex environment since they need to understand a greater fraction of the financial network to assess their own financial health. Complexity dramatically amplifies banks' perceived counterparty risk, and makes relatively healthy banks reluctant to buy risky assets. The model also features a novel complexity externality.</description><subject>Bank assets</subject><subject>Bank liquidity</subject><subject>Bank markets</subject><subject>Banking crises</subject><subject>Bankruptcy</subject><subject>Banks</subject><subject>Complexity</subject><subject>Conceptualization</subject><subject>Economic crisis</subject><subject>Economic models</subject><subject>Economic uncertainty</subject><subject>Endogenous</subject><subject>Externalities</subject><subject>Financial crisis</subject><subject>Financial risk</subject><subject>Flight to quality</subject><subject>Legacies</subject><subject>Payments</subject><subject>Risk</subject><subject>Risk exposure</subject><subject>Risk management</subject><subject>Sales</subject><subject>Studies</subject><subject>Uncertainty</subject><issn>0022-1082</issn><issn>1540-6261</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2013</creationdate><recordtype>article</recordtype><sourceid>8BJ</sourceid><recordid>eNp9kctLw0AQxhdRsFYv3oVALyJE95F95CjF1Fd9oOJx2SQTSE27dTfF9r93a7QHD53LwHy_bxi-QeiY4HMS6mJiq_qcUKzkDuoRnuBYUEF2UQ9jSmOCFd1HB95P8Lo476FBVjuIXkwDPqpnkYnGtoQmslU0tNN5A8u6XR2ivco0Ho5-ex-9ZVevw-v4_nF0M7y8jwuulIyFkZwobqhkYSDzghUKS1kaWVKjJFaQp1SUVZKnac6gpAClZAaSsshJAYr10Wm3d-7s5wJ8q6e1L6BpzAzswmuSCIFTJogM6OAfOrELNwvXaUqESCVOBNtGhV2YJilRJFBnHVU4672DSs9dPTVupQnW61T1OlX9k2qASQd_1Q2stpD69jG7-fOcdJ6Jb63beBIansIlD3rc6bVvYbnRjfvQQjLJ9fvDSGfjIc3E3ZN-Zt-wjo7O</recordid><startdate>201312</startdate><enddate>201312</enddate><creator>CABALLERO, RICARDO J.</creator><creator>SIMSEK, ALP</creator><general>Blackwell Publishing Ltd</general><general>Wiley Subscription Services</general><general>Blackwell Publishers Inc</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>201312</creationdate><title>Fire Sales in a Model of Complexity</title><author>CABALLERO, RICARDO J. ; SIMSEK, ALP</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c5887-6a75185a273c587bc3c8077da7d2a8708eb926df4b99b3ed2eed73ae4dcb1ce83</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2013</creationdate><topic>Bank assets</topic><topic>Bank liquidity</topic><topic>Bank markets</topic><topic>Banking crises</topic><topic>Bankruptcy</topic><topic>Banks</topic><topic>Complexity</topic><topic>Conceptualization</topic><topic>Economic crisis</topic><topic>Economic models</topic><topic>Economic uncertainty</topic><topic>Endogenous</topic><topic>Externalities</topic><topic>Financial crisis</topic><topic>Financial risk</topic><topic>Flight to quality</topic><topic>Legacies</topic><topic>Payments</topic><topic>Risk</topic><topic>Risk exposure</topic><topic>Risk management</topic><topic>Sales</topic><topic>Studies</topic><topic>Uncertainty</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>CABALLERO, RICARDO J.</creatorcontrib><creatorcontrib>SIMSEK, ALP</creatorcontrib><collection>Istex</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>The Journal of finance (New York)</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>CABALLERO, RICARDO J.</au><au>SIMSEK, ALP</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Fire Sales in a Model of Complexity</atitle><jtitle>The Journal of finance (New York)</jtitle><addtitle>The Journal of Finance</addtitle><date>2013-12</date><risdate>2013</risdate><volume>68</volume><issue>6</issue><spage>2549</spage><epage>2587</epage><pages>2549-2587</pages><issn>0022-1082</issn><eissn>1540-6261</eissn><coden>JLFIAN</coden><abstract>We present a model of financial crises that stem from endogenous complexity. We conceptualize complexity as banks' uncertainty about the financial network of cross exposures. As conditions deteriorate, cross exposures generate the possibility of a domino effect of bankruptcies. As this happens, banks face an increasingly complex environment since they need to understand a greater fraction of the financial network to assess their own financial health. Complexity dramatically amplifies banks' perceived counterparty risk, and makes relatively healthy banks reluctant to buy risky assets. The model also features a novel complexity externality.</abstract><cop>Cambridge</cop><pub>Blackwell Publishing Ltd</pub><doi>10.1111/jofi.12087</doi><tpages>39</tpages><oa>free_for_read</oa></addata></record>
fulltext	fulltext
identifier	ISSN: 0022-1082
ispartof	The Journal of finance (New York), 2013-12, Vol.68 (6), p.2549-2587
issn	0022-1082 1540-6261
language	eng
recordid	cdi_proquest_miscellaneous_1466093617
source	International Bibliography of the Social Sciences (IBSS); JSTOR Archival Journals and Primary Sources Collection; Wiley-Blackwell Read & Publish Collection
subjects	Bank assets Bank liquidity Bank markets Banking crises Bankruptcy Banks Complexity Conceptualization Economic crisis Economic models Economic uncertainty Endogenous Externalities Financial crisis Financial risk Flight to quality Legacies Payments Risk Risk exposure Risk management Sales Studies Uncertainty
title	Fire Sales in a Model of Complexity
url	http://sfxeu10.hosted.exlibrisgroup.com/loughborough?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2025-01-28T05%3A51%3A49IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-jstor_proqu&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&rft.genre=article&rft.atitle=Fire%20Sales%20in%20a%20Model%20of%20Complexity&rft.jtitle=The%20Journal%20of%20finance%20(New%20York)&rft.au=CABALLERO,%20RICARDO%20J.&rft.date=2013-12&rft.volume=68&rft.issue=6&rft.spage=2549&rft.epage=2587&rft.pages=2549-2587&rft.issn=0022-1082&rft.eissn=1540-6261&rft.coden=JLFIAN&rft_id=info:doi/10.1111/jofi.12087&rft_dat=%3Cjstor_proqu%3E42002575%3C/jstor_proqu%3E%3Cgrp_id%3Ecdi_FETCH-LOGICAL-c5887-6a75185a273c587bc3c8077da7d2a8708eb926df4b99b3ed2eed73ae4dcb1ce83%3C/grp_id%3E%3Coa%3E%3C/oa%3E%3Curl%3E%3C/url%3E&rft_id=info:oai/&rft_pqid=1460249181&rft_id=info:pmid/&rft_jstor_id=42002575&rfr_iscdi=true