This paper analyzes the causes and consequences of credit expansions through the lens of equity prices. In a set of 20 developed countries over the years 1920-2012, bank credit expansion predicts increased crash risk in the bank equity index and equity market index. However, despite the elevated crash risk, bank credit expansion predicts lower rather than higher mean returns of these indices in the subsequent one to eight quarters. In fact, conditional on bank credit expansion of a country exceeding a 95th percentile threshold, the predicted excess return for the bank equity index in the subsequent eight quarters is -23.0%. This joint presence of increased crash risk and negative mean returns presents a challenge to the views that credit expansions are simply caused by either banks acting against the will of shareholders or by elevated risk appetite of shareholders, and instead suggests a need to account for the role of over-optimism or neglect of crash risk by bankers and shareholders.* We are grateful to

We study performance and competition among firms engaging in high-frequency trading (HFT). We construct measures of latency and find that differences in relative latency account for large differences in HFT firms’ trading performance. HFT firms that improve their latency rank due to colocation upgrades see improved trading performance. The stronger performance associated with speed comes through both the short-lived information channel and the risk management channel, and speed is useful for various strategies, including market making and cross-market arbitrage. We find empirical support for many predictions regarding relative latency competition.

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We examine historical banking crises through the lens of bank equity declines, which cover a broad sample of episodes of banking distress both with and without banking panics. To do this, we construct a new dataset on bank equity returns and narrative information on banking panics for 46 countries over the period of 1870–2016. We find that even in the absence of panics, large bank equity declines are associated with substantial credit contractions and output gaps. While panics are an important amplification mechanism, our results indicate that panics are not necessary for banking crises to have severe economic consequences. Furthermore, panics tend to be preceded by large bank equity declines, suggesting that panics are the result, rather than the cause, of earlier bank losses. We also use bank equity returns to uncover a number of forgotten historical banking crises and to create a banking crisis chronology that distinguishes between bank equity losses and panics.

By analyzing 20 developed economies over 1920–2012, we find the following evidence of overoptimism and neglect of crash risk by bank equity investors during credit expansions: (i) bank credit expansion predicts increased bank equity crash risk, but despite the elevated crash risk, also predicts lower mean bank equity returns in subsequent one to three years; (ii) conditional on bank credit expansion of a country exceeding a 95th percentile threshold, the predicted excess return for the bank equity index in subsequent three years is −37.3%; and (iii) bank credit expansion is distinct from equity market sentiment captured by dividend yield and yet dividend yield and credit expansion interact with each other to make credit expansion a particularly strong predictor of lower bank equity returns when dividend yield is low.

Introduction Mucopolysaccharidosis I (MPS I) is a lysosomal storage disorder characterized by deficient α-L-iduronidase activity leading to accumulation of poorly degraded dermatan and heparan sulfate glycosaminoglycans (GAGs). MPS I is associated with significant cervical spine disease, including vertebral dysplasia, odontoid hypoplasia, and accelerated disc degeneration, leading to spinal cord compression and kypho-scoliosis. The objective of this study was to establish the nature and rate of progression of cervical vertebral bone disease in MPS I using a canine model. Methods C2 vertebrae were obtained post-mortem from normal and MPS I dogs at 3, 6 and 12 months-of-age. Morphometric parameters and mineral density for the vertebral trabecular bone and odontoid process were determined using micro-computed tomography. Vertebrae were then processed for paraffin histology, and cartilage area in both the vertebral epiphyses and odontoid process were quantified. Results Vertebral bodies of MPS I dogs had lower trabecular bone volume/total volume (BV/TV), trabecular thickness (Tb.Th), trabecular number (Tb.N) and bone mineral density (BMD) than normals at all ages. For MPS I dogs, BV/TV, Tb.Th and BMD plateaued after 6 months-of-age. The odontoid process appeared morphologically abnormal for MPS I dogs at 6 and 12 months-of-age, although BV/TV and TMD were not significantly different from normals. MPS I dogs had significantly more cartilage in the vertebral epiphyses at both 3 and 6 months-of-age. At 12 months-of-age, epiphyseal growth plates in normal dogs were absent, but in MPS I dogs they persisted. Conclusions In this study we report reduced trabecular bone content and mineralization, and delayed cartilage to bone conversion in MPS I dogs from 3 months-of-age, which may increase vertebral fracture risk and contribute to progressive deformity. The abnormalities of the odontoid process we describe likely contribute to increased incidence of atlanto-axial subluxation observed clinically. Therapeutic strategies that enhance bone formation may decrease incidence of spine disease in MPS I patients.

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