The role of institutional investors in propagating the crisis of 2007–2008

Manconi, Alberto; Massa, Massimo; Yasuda, Ayako

doi:10.1016/j.jfineco.2011.05.011

Cited by 265 publications

(106 citation statements)

References 30 publications

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“…The reason is that atomistic agents take prices as given, but on aggregate the equilibrium price depends on their joint behavior. As they do not internalize the possible effects of a generalized fire sale on ex-post borrowing capacity, agents may overborrow, leading to excessive leverage and inflated asset prices (Bianchi, 2011, Caballero and Krishnamurthy, 2003, Lorenzoni, 2008, Jeanne and Korinek, 2010, and Stein, 2012Manconi et al, 2012;Merrill et al, 2012;see Brunnermeier, Eisenbach and Sannikov, 2013, for a review).…”

Section: Externalities Related To Fire Sales and Credit Crunchesmentioning

confidence: 99%

An Overview of Macroprudential Policy Tools

2014

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Macroprudential policies -caps on loan to value ratios, limits on credit growth and other balance sheets restrictions, (countercyclical) capital and reserve requirements and surcharges, and Pigouvian levies -have become part of the policy paradigm in emerging markets and advanced countries alike. But knowledge is still limited on these tools. Macroprudential policies ought to be motivated by market failures and externalities, but these can be hard to identify. They can also interact with various other policies, such as monetary and microprudential, raising coordination issues. Some countries, especially emerging markets, have used these tools and analyses suggest that some can reduce procyclicality and crisis risks. Yet, much remains to be studied, including tools' costs  by adversely affecting resource allocations; how to best adapt tools to country circumstances; and preferred institutional designs, including how to address political economy risks. As such, policy makers should move carefully in adopting tools. JEL Classification Numbers: E43, E58, G18, G28

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Section: Externalities Related To Fire Sales and Credit Crunchesmentioning

confidence: 99%

An Overview of Macroprudential Policy Tools

2014

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“…Second, to control for the possibility that EBP shocks may be confounded with uncertainty shocks, we include into the baseline model specification the CBOE VXO implied volatility index which is a popular proxy for uncertainty (see Bloom, 2009 The 2007-08 global financial crisis has revived the literature on the international transmission of financial shocks (see, e.g., Bagliano and Morana, 2012;Fry-McKibbin et al, 2014;Blatt et al, 2015). Several transmission channels through which the turmoil emanating from US financial markets spread to the global economy have been documented, for instance, cross-border holdings of asset-backed securities (e.g., Longstaff, 2010;Manconi et al, 2012) and bank credit default swaps (e.g., Eichengreen et al, 2012), balance-sheet rebalancing by globalized banking conglomerates (e.g., Cettorelli and Goldberg, 2012;Giannetti and Laeven, 2012;De Haas and Van Horen, 2013), equity market contagion (e.g., , and the collapse of global trade (e.g., Bems et al, 2011). Thus far, however, the empirical literature on the link between credit market frictions and international financial spillovers is scarce.…”

Section: Ecb Working Paper 1954 August 2016mentioning

confidence: 99%

Credit constraints and the international propagation of US financial shocks

Metiu

Hilberg

Grill

2016

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-technical summaryThe 2007-08 turmoil in US financial markets gave rise to a credit crunch with widespread effects on the global economy. Considering the pivotal role of the United States in international financial markets, a key question is how financial shocks that originate from the US propagate across the globe. In particular, we ask whether US financial shocks generate global spillovers that depend nonlinearly on the severity of credit constraints in the US economy.A consensus seems to emerge from theoretical models that financial frictions are central to understanding the nonlinearities observed during financial crisis episodes. Moreover, theoretical studies have shown that financial frictions lead to an amplification of cross-border shocks, and structural models featuring such frictions provide a more realistic picture of international macroeconomic fluctuations. However, most empirical studies on macro-financial linkages resort to linear models that fail to account for the nonlinear amplification mechanisms implied by these theoretical considerations. There is an equally limited empirical literature that investigates the relation between financial frictions and global spillovers. This paper aims to fill these gaps. The novelty of this paper is to assess the impact of US financial shocks in an empiricalopen-economy model that features nonlinear dynamics. We model the dynamics of the US economy jointly with global macroeconomic and financial variables using a regimeswitching threshold vector autoregression (TVAR). This model distinguishes between "normal" and "tight" credit regimes in the US economy. The transition across regimes is determined by the level of an excess bond premium (EBP) on US corporate bonds that gauges the tightness of credit constraints in the US economy. Using data for the period from 1984 to 2012, we identify three main episodes of tight credit in US financial history.The first episode takes place during the savings and loan crisis of the 1980s, the second occurs in the early 2000s, and the third is associated with the 2007-09 financial crisis.The US economy responds asymmetrically to an adverse US financial shock, associated with an unexpected rise in the EBP. In the normal credit regime, the US economy ECB Working Paper 1954, August 2016 2 is resilient in the face of financial disturbances, and the impact of EBP shocks on the macroeconomy is not statistically significant. In contrast, EBP shock...

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“…2 Investment Company Institute (5 April 2013). 3 On liquidity and financial market runs, and the role of international investors in crisis, see, for instance, Bernardo and Welch (2004) and Manconi, Massa, and Yasuda (2012). 4 See, for example, Ben-Rephael, Kandel, and Wohl (2012);Jotikasthira, Lundblad, and Ramadorai (2012); Coval and Stafford (2007);Baker, Wurgler, and Yuan (2012); Raddatz and Schmukler (2011);Broner, Gelos, and Reinhart (2006); Goldstein and Pauzner (2004);and Kaminsky, Lyons, and Schmukler (2001).…”

Section: Introductionmentioning

confidence: 99%

Measuring Systemic Risk Contribution of International Mutual Funds

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. Huanhuan Zheng is assistant professor at Chinese University of Hong Kong.The authors thank Ilhyock Shim and participants at the ADBI workshop for useful comments and suggestions.The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, JapanTel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.org E-mail: info@adbi.org AbstractThis study provides new evidence of systemic risk contribution in the international mutual fund sector from 2000-2011. The empirical analysis tracks the systemic risk of 10,570 mutual funds investing internationally. The main findings suggest that the systemic risk contributions of international mutual funds are more than proportional given the fund's size. Policy implications are discussed in terms of practicality of regulation, macroprudential approach, and risk-taking behavior of fund managers.

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The role of institutional investors in propagating the crisis of 2007–2008

Cited by 265 publications

References 30 publications

An Overview of Macroprudential Policy Tools

An Overview of Macroprudential Policy Tools

Credit constraints and the international propagation of US financial shocks

Measuring Systemic Risk Contribution of International Mutual Funds

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