The Real Effects of Debt
At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging. When does debt go from good to bad? We address this question using a new [...]
Impact of Public Sector Assumed Returns on Investment Choices
Does the use of assumed investment returns to value liabilities and calculate required contributions lead public pension plans to invest more in risky assets? The analysis finds that, even after [...]
Leverage-Induced Fire Sales and Stock Market Crashes
We provide direct evidence of leverage-induced fire sales contributing to a market crash using account-level trading data for brokerage- and shadow-financed margin accounts during the Chinese stock market crash of [...]
Policy uncertainty, financial stability, and stress testing
Since the 2009 Supervisory Capital Assessment Program (SCAP), US regulators have employed a representative bank model as the benchmark of comparison in mandatory stress test exercises. For risk management functions, [...]
Financial Stability, Interest Rate Smoothing and Equilibrium Determinacy
This paper examines the interaction between monetary policy and financial stability and provides an assessment of the implications of banks’ risk management practices for monetary policy. By considering the desire [...]
The Misguided Beliefs of Financial Advisors
A common view of retail finance is that conflicts of interest contribute to the high cost of advice. Within a large sample of Canadian financial advisors and their clients, however, [...]
The Costs and Benefits of Bank Capital – A Review of the Literature
In 2010, the Basel Committee on Banking Supervision published an assessment of the long-term economic impact (LEI) of stronger capital and liquidity requirements (BCBS (2010)). This paper considers this assessment [...]
What Explains Differences in Finance Research Productivity During the Pandemic?
Using a survey of AFA members, we analyze how demographics, time allocation, production mechanisms, and institutional factors affect research production during the pandemic. Consistent with the literature, research productivity falls [...]
Liquidity and Volatility
Liquidity provision is a bet against private information: if private information turns out to be higher than expected, liquidity providers lose. Since information generates volatility, and volatility co-moves across assets, [...]
Social Transmission Bias and Cultural Evolution in Financial Markets
The thoughts and behaviors of financial market participants depend upon adopted cultural traits, including information signals, beliefs, strategies, and folk economic models. Financial traits compete to survive in the human [...]