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NBER Working Papers and Publications
|October 2016||Measuring Liquidity Mismatch in the Banking Sector|
with Arvind Krishnamurthy, Charles-Henri Weymuller: w22729
This paper implements a liquidity measure, “Liquidity Mismatch Index (LMI),” to gauge the mismatch between the market liquidity of assets and the funding liquidity of liabilities. We construct the LMIs for 2882 bank holding companies during 2002-2014 and investigate the time-series and cross-sectional patterns of banks' liquidity and liquidity risk. Aggregate banking sector liquidity worsens from +$4 trillion before the crisis to -$6 trillion in 2008, and reverses back to the pre-crisis level in 2009. We also show how a macro-prudential liquidity stress test can be conducted with the LMI metric, and that such a stress test could have revealed the fragility of the banking system in early 2007. In the cross section, we find that banks with more ex-ante liquidity mismatch have a higher stock...
|December 2013||Have Financial Markets Become More Informative?|
with Thomas Philippon, Alexi Savov: w19728
The finance industry has grown, financial markets have become more liquid, information technology has undergone a revolution. But have market prices become more informative? We derive a welfare-based measure of price informativeness: the predicted variation of future cash flows from current market prices. Since 1960, price informativeness has increased at longer horizons (three to five years). The increase is concentrated among firms with greater institutional ownership and share turnover, firms with traded options, and growth firms. Prices have also become a stronger predictor of investment and investment a stronger predictor of cash flows. These results suggest increased revelatory price efficiency.
Published: Bai, Jennie & Philippon, Thomas & Savov, Alexi, 2016. "Have financial markets become more informative?," Journal of Financial Economics, Elsevier, vol. 122(3), pages 625-654. citation courtesy of
|December 2012||When Is There a Strong Transfer Risk from the Sovereigns to the Corporates? Property Rights Gaps and CDS Spreads|
with Shang-Jin Wei: w18600
When a sovereign faces the risk of debt default, it may be tempted to expropriate the private sector. This may be one reason for why international investment in private companies has to take into account the sovereign risk. But the likelihood of a transfer from the sovereign risk to corporate default risks may be mitigated by legal institutions that provide strong property rights protection. Using a novel credit default swaps (CDS) dataset covering both government and corporate entities across 30 countries, this paper studies both the average strength of the transfer risks and the role of institutions in mitigating such risks. We find that (1) sovereign risk on average has a statistically and economically significant influence on corporate credit risks. All else equal, a 100 basis points i...