NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Procyclical Leverage and Value-at-Risk

Tobias Adrian, Hyun Song Shin

NBER Working Paper No. 18943
Issued in April 2013
NBER Program(s):   CF   ME

The availability of credit varies over the business cycle through shifts in the leverage of financial intermediaries. Empirically, we find that intermediary leverage is negatively aligned with the banks' Value-at-Risk (VaR). Motivated by the evidence, we explore a contracting model that captures the observed features. Under general conditions on the outcome distribution given by Extreme Value Theory (EVT), intermediaries maintain a constant probability of default to shifts in the outcome distribution, implying substantial deleveraging during downturns. For some parameter values, we can solve the model explicitly, thereby endogenizing the VaR threshold probability from the contracting problem.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18943

Users who downloaded this paper also downloaded these:
Bruno and Shin w18942 Capital Flows and the Risk-Taking Channel of Monetary Policy
Acharya, Engle, and Pierret w18968 Testing Macroprudential Stress Tests: The Risk of Regulatory Risk Weights
Cochrane w18944 Finance: Function Matters, not Size.
Cihak, Demirguc-Kunt, Feyen, and Levine w18946 Financial Development in 205 Economies, 1960 to 2010
DeAngelo and Stulz w19139 Why High Leverage is Optimal for Banks
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us