University of California at Los Angeles
Anderson School of Management
110 Westwood Plaza
Los Angeles, CA 90024
NBER Program Affiliations:
NBER Affiliation: Faculty Research Fellow
NBER Working Papers and Publications
|September 2017||How Credit Cycles across a Financial Crisis|
with Arvind Krishnamurthy: w23850
We study the behavior of credit and output across a financial crisis cycle using information from credit spreads. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that crises involve a dramatic shift in expectations and are a surprise. The severity of the subsequent crisis can be forecast by the size of credit losses (change in spreads) coupled with the fragility of the financial sector (as measured by pre-crisis credit growth), and we document that this interaction is an important feature of crises. We also find that recessions in the aftermath of financial crises are severe and protracted. Finally, we find that spreads fall pre-crisis and appear too low, even as credit grows ahead of a crisis. This behavior of both prices and quantities sugg...
|September 2016||Mobile Collateral versus Immobile Collateral|
with Gary Gorton: w22619
In the face of the Lucas Critique, economic history can be used to evaluate policy. We use the experience of the U.S. National Banking Era to evaluate the most important bank regulation to emerge from the financial crisis, the Bank for International Settlement's liquidity coverage ratio (LCR) which requires that (net) short-term (uninsured) bank debt (e.g. repo) be backed one-for-one with U.S. Treasuries (or other high quality bonds). The rule is narrow banking. The experience of the U.S. National Banking Era, which also required that bank short-term debt be backed by Treasury debt one-for-one, suggests that the LCR is unlikely to reduce financial fragility and may increase it.
|April 2016||Volatility Managed Portfolios|
with Alan Moreira: w22208
Managed portfolios that take less risk when volatility is high produce large alphas, substantially increase factor Sharpe ratios, and produce large utility gains for mean-variance investors. We document this for the market, value, momentum, profitability, return on equity, and investment factors in equities, as well as the currency carry trade. Volatility timing increases Sharpe ratios because changes in factor volatilities are not offset by proportional changes in expected returns. Our strategy is contrary to conventional wisdom because it takes relatively less risk in recessions and crises yet still earns high average returns. This rules out typical risk-based explanations and is a challenge to structural models of time-varying expected returns.
Published: ALAN MOREIRA & TYLER MUIR, 2017. "Volatility-Managed Portfolios," The Journal of Finance, vol 72(4), pages 1611-1644.
|September 2014||Aggregate External Financing and Savings Waves|
with Andrea L. Eisfeldt: w20442
US data display aggregate external financing and savings waves. Firms can allocate costly external finance to productive capital, or to liquid assets with low physical returns. If firms raise costly external finance and accumulate liquidity, either the cost of external finance is relatively low, or the total return to liquidity accumulation, including its shadow value as future internal funds, is particularly high. We formalize this intuition by estimating a dynamic model of firms’ financing and savings decisions, and use our model along with firm level data to construct an empirical estimate of the average cost of external finance from 1980-2014.
Published: Andrea L. Eisfeldt & Tyler Muir, 2016. "Aggregate External Financing and Savings Waves," Journal of Monetary Economics, .