Prof. Malamud awarded a SNF Starting Grant

The goal of this project is to develop and test new theoretical models of market and funding liquidity and their link to the real economy. The project will cover liquidity frictions induced by strategic trading, decentralized markets, adverse selection, endogenous capital flows into the financial sector, and the intermediaries' (collective) moral hazard. In particular, the project will study the endogenous emergence of different types of market structures and their endogenous liquidity; the types of financial contracts that should be traded OTC to minimize adverse selection, allocative and informational inefficiencies; the role of transparency for informational and allocative efficiency; the role of financial intermediaries for liquidity creation and transformation; the effects of (endogenous) incentives of financial intermediaries on market efficiency and their feedback effects on the real economy; capital flows into the financial sector and liquidity hoarding and its real effects; the role of liquidity in the propagation of shocks in the economy and the cross-sectional redistribution of liquidity; and government interventions and market failures in the presence of decentralized markets and strategic behavior.

According to the SNSF, a total of 143 proposals were submitted in all areas of science. Only 27 proposals were selected.