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"We study the exposure of the U.S. corporate bond returns to liquidity shocks of stocks and treasury bonds over the period 1973 to 2007. A decline in liquidity of stocks or Treasury bonds produces conflicting effects: Prices of investment-grade bonds rise while prices of speculative grade bonds...
Persistent link: https://www.econbiz.de/10008666982
We investigate how firms manage financial default risk (on debt) and operational default risk (on delivery obligations). Financially constrained firms reduce operational hedging through inventory and supply chain in favor of cash holdings. Our model predicts that firms' markup increases with...
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We document that the convenience yield of U.S. Treasuries exhibits properties that are consistent with a hedging perspective of safe assets. The convenience yield tends to be low when the covariance of Treasury returns with the aggregate stock market returns is high. A decomposition of the...
Persistent link: https://www.econbiz.de/10014436994
We assess the efficacy of systemic risk measures that rely on U.S. financial firms' stock return co-movements with market- or sector-wide returns under stress from 1927 to 2023. We ascertain stress episodes based on widening of corporate bond spreads and narrative dating. Systemic risk measures...
Persistent link: https://www.econbiz.de/10015145161
We study the crash of bank stock prices during the COVID-19 pandemic. We find evidence consistent with a "credit line drawdown channel". Stock prices of banks with large ex-ante exposures to undrawn credit lines as well as large ex-post gross drawdowns decline more. The effect is attenuated for...
Persistent link: https://www.econbiz.de/10012496112
Central bank balance sheet expansion is financed by commercial banks. It involves not just a substitution of liquid central bank reserves for other assets held by commercial banks, but also a counterpart alteration in commercial bank liabilities, such as in short-term deposits issued to finance...
Persistent link: https://www.econbiz.de/10012814455
We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels -- risky firms just above the IG rating cutoff -- enjoyed subsidized bond financing since 2009, especially when the scale of QE purchases...
Persistent link: https://www.econbiz.de/10012938746