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We offer a general equilibrium analysis of cryptocurrency pricing. The fundamental value of the cryptocurrency is its stream of net transactional benefits, which depend on its future prices. This implies that, in addition to fundamentals, equilibrium prices reflect sunspots. This in turn implies multiple equilibria and extrinsic volatility, that is, cryptocurrency prices fluctuate even when fundamentals are constant. To match our model to the data, we construct indices measuring the net transactional benefits of Bitcoin. In our calibration, part of the variations in Bitcoin returns reflects changes in net transactional benefits, but a larger share reflects extrinsic volatility. Article Note: Bruno Biais is at HEC Paris. Christophe Bisière, Matthieu Bouvard, and Catherine Casamatta are at Toulouse School of Economics, Université Toulouse Capitole (TSM-Research). Albert J. Menkveld is at Vrije Universiteit Amsterdam. Many thanks for helpful comments to the editor, Stefan Nagel, the Associate Editor, two referees, as well as Will Cong, Patrick Fève, René Garcia, Co-Pier Georg, Alexander Guembel, Zhiguo He, Michael Kumhof, Nour Meddahi, Eric Mengus, Julien Prat, George Tauchen, Harald Uhlig, Boris Vallée, Stefan Voigt, Yu Wang and conference and seminar participants in the 2018 BIS Research Network meeting, the 2018 Becker Friedman Institute Conference on Blockchains and Cryptocurrencies, the 2018 Ridge Forum, the 2018 EuroFIT Conference at UCL, the 2019 WEF Davos, the 2019 Toronto FinTech Conference, the 2019 Tokenomics Conference, the 2019 Sustainable Finance Center Conference and Financial Econometrics Conference at TSE, the 2019 ESSFM in Gerzensee, the 2019 CEBRA Annual Meeting, the 2019 EFA Meeting, the 2020 AFA meeting, the 2021 AFFI meeting, Autorité des Marchés Financiers, Banque Centrale du Luxembourg, Banque de France, Cambridge University, CEIBS Shanghai, Central European University, Fudan University, HEC Paris, HEC Liège, Imperial College, Said Business School, University of Chile FEB, University of New South Wales, University Paris Dauphine, University of Technology Sydney and University of Vienna. We gratefully acknowledge support from the Jean-Jacques Laffont Digital Chair, the Norwegian Finance Initiative (NFI), the Netherlands Organization for Scientific Research (NWO Vici grant), the ANR (grant ANR-17-EURE-0010), EconPol Europe, and the European Research Council (grant 882375, WIDE). We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose. CAPTION(S): Appendix S1: Internet Appendix. Replication Code. Byline: BRUNO BIAIS, CHRISTOPHE BISIÈRE, MATTHIEU BOUVARD, CATHERINE CASAMATTA, ALBERT J. MENKVELD

We study consensus in a protocol capturing in a simplified manner the major features of the majority of Proof of Stake blockchains. A committee is formed; one member proposes a block; and the others can check its validity and vote for it. Blocks with a majority of votes are produced. When an invalid block is produced, the stakes of the members who voted for it are "slashed." Profit-maximizing members interact with adversaries seeking to disrupt consensus. When slashing is limited, free-riding and moral-hazard lead to invalid blocks in equilibrium. We propose a protocol modification producing only valid blocks in equilibrium. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

Over the past decade, blockchains and cryptocurrencies have taken a central stage in financial technology (FinTech) innovation. In 2020–2021, as the academic finance and management community began actively investigating this domain, we issued a call for papers for a special issue to encourage interdisciplinary research in this emerging area. This section of Management Science presents the first systematic collection of knowledge, both theoretical and empirical, focusing on blockchain economics, crypto assets, decentralized finance, and Web3 ecosystems. We describe the editorial protocol employed for this special issue (now included in this volume as a special section), summarize what we learn about the field, and introduce the 15 articles included in the special section. We also offer several observations to highlight foundational issues in the new field and to guide future research in this exciting new area at the intersection of technology and finance. [ABSTRACT FROM AUTHOR]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2015.03.004 Byline: Bruno Biais, Thierry Foucault, Sophie Moinas Abstract: High speed market connections improve investors' ability to search for attractive quotes in fragmented markets, raising gains from trade. They also enable fast traders to obtain information before slow traders, generating adverse selection, and thus negative externalities. When investing in fast trading technologies, institutions do not internalize these externalities. Accordingly, they overinvest in equilibrium. Completely banning fast trading is dominated by offering two types of markets: one accepting fast traders, the other banning them. Utilitarian welfare is maximized with (i) a single market type on which fast and slow traders coexist and (ii) Pigovian taxes on investment in the fast trading technology. Author Affiliation: (a) Toulouse School of Economics (CNRS-CRM and FBF IDEI Chair on Investment Banking and Financial markets), Manufacture des Tabacs, 21 allees de Brienne, 31000 Toulouse, France (b) HEC, Paris, 1 rue de la Liberation, 78351 Jouy en Josas, France (c) Toulouse School of Economics, University of Toulouse 1 Capitole and FBF IDEI Chair on Investment Banking and Financial markets, Manufacture des Tabacs, 21 allees de Brienne, 31000 Toulouse, France Article History: Received 8 February 2013; Revised 3 September 2014; Accepted 23 September 2014 Article Note: (footnote) [star] Many thanks for helpful comments to the referee, Alex Guembel, Terrence Hendershott, Carolina Manzano, Albert Menkveld, Anna Obizhaeva, Emiliano Pagnotta, Rafael Repullo, Ailsa Roell, Xavier Vives and participants in the High Frequency Conference (Madrid, 2012), the 2012 SFS Cavalcade, the 2013 AFA meeting, and the 2014 SED meeting. Moinas acknowledges the support of the ANR (Grant 09-JCJC-0139-01). Biais acknowledges the support of the ERC (Grant 295484 - TAP).

We study opening prices set simultaneously for German and French stocks inFrankfurt and Paris. In our model investors and traders based in the samecountry as the firm have better information on its value than foreigntraders. Our theory implies that prices set on the domestic market differfrom (and are more informationally efficient than) prices set on the foreignmarket. Empirically, we find significant price discrepancies between homeand foreign prices, consistent with lack of integration of internationalfinancial markets. For German stocks, home prices are found to beinformationally more efficient than foreign prices. The informationalefficiency of French stock prices is comparable in the two markets whenFrankfurt traders can observe Paris preopening prices before the opening.

In order to share risk, protection buyers trade derivatives with protection sellers. Protection sellers' actions affect the riskiness of their assets, which can create counterparty risk. Because these actions are unobservable, moral hazard limits risk sharing. To mitigate this problem, privately optimal derivative contracts involve variation margins. When margins are called, protection sellers must liquidate some assets, depressing asset prices. This tightens the incentive constraints of other protection sellers and reduces their ability to provide insurance. Despite this fire-sale externality, equilibrium is information-constrained efficient. Investors, who benefit from buying assets at fire-sale prices, optimally supply insurance against the risk of fire sales. [ABSTRACT FROM AUTHOR]

We analyze a game between citizens and governments, whose type (benevolent or predatory) is unknown to the public. Opportunistic governments mix between predation and restraint. As long as restraint is observed, political expectations improve, people enter the modern sector, and the economy grows. Once there is predation, the reputation of the government is ruined and the economy collapses. If citizens are unable to overthrow this government, the collapse is durable. Otherwise, a new government is drawn and the economy can rebound. Consistent with stylized facts, equilibrium political and economic histories are random, unstable, and exhibit long-term divergence. [ABSTRACT FROM AUTHOR]

Abstract: We survey the literature analyzing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We offer a synthesis of the theoretical microfoundations and empirical approaches. Within this framework, we confront adverse selection, inventory costs and market power theories to the evidence on transactions costs and price impact. Building on these results, we proceed to an equilibrium analysis of policy issues. We review the extent to which market frictions can be mitigated by such features of market design as the degree of transparency, the use of call auctions, the pricing grid, and the regulation of competition between liquidity suppliers or exchanges. [Copyright &y& Elsevier]