We introduce SRISK to measure the systemic risk contribution of a financial firm. SRISK measures the capital shortfall of a firm conditional on a severe market decline, and is a function of its size, ...leverage and risk. We use the measure to study top financial institutions in the recent financial crisis. SRISK delivers useful rankings of systemic institutions at various stages of the crisis and identifies Fannie Mae, Freddie Mac, Morgan Stanley, Bear Stearns, and Lehman Brothers as top contributors as early as 2005-Q1. Moreover, aggregate SRISK provides early warning signals of distress in indicators of real activity.
Impact investing Barber, Brad M.; Morse, Adair; Yasuda, Ayako
Journal of financial economics,
January 2021, 2021-01-00, 20210101, Volume:
139, Issue:
1
Journal Article
Peer reviewed
We show that investors derive nonpecuniary utility from investing in dual-objective Venture Capital (VC) funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower internal ...rates of return (IRRs) ex-post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5–3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and United Nations Principles of Responsible Investment signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., Employee Retirement Income Security Act) exhibit low WTP.
The Macroeconomics of Shadow Banking MOREIRA, ALAN; SAVOV, ALEXI
The Journal of finance (New York),
December 2017, Volume:
72, Issue:
6
Journal Article
Peer reviewed
Open access
We build a macrofinance model of shadow banking—the transformation of risky assets into securities that are money-like in quiet times but become illiquid when uncertainty spikes. Shadow banking ...economizes on scarce collateral, expanding liquidity provision, boosting asset prices and growth, but also building up fragility. A rise in uncertainty raises shadow banking spreads, forcing financial institutions to switch to collateral-intensive funding. Shadow banking collapses, liquidity provision shrinks, liquidity premia and discount rates rise, asset prices and investment fall. The model generates slow recoveries, collateral runs, and flight-to-quality effects, and it sheds light on Large-Scale Asset Purchases, Operation Twist, and other interventions.
This paper contrasts the investment behavior of different financial institutions in debt securities as a response to past returns. For identification, I use unique security-level data from the German ...Microdatabase Securities Holdings Statistics. Banks and investment funds respond in a procyclical manner to past security-specific holding period returns. In contrast, insurance companies and pension funds act countercyclically; they buy when returns have been negative and sell after high returns. The heterogeneous responses can be explained by differences in their balance sheet structure. I exploit within-sector variation in the financial constraint to show that tighter constraints are associated with relatively more procyclical investment behavior.
The identification of systemically important financial institutions (SIFIs) is an important measure to deal with systemic risks. To achieve this goal, we first use generalized variance decomposition ...method and granger causality test to construct jump volatility spillover networks of Chinese financial institutions based on the 5‐min high‐frequency data. Then, out‐strength and in‐strength are adopted to analyze the SIFI. Finally, we use panel data regression model to investigate the determinant of the SIFIs. The empirical results show that: (a) The network density reaches a peak when the financial system under pressure during the China's stock market disaster of 2015. (b) Large banks and insurances usually display systemic importance, while some small financial institutions are also SIFIs due to their high value of out‐strength and in‐strength. (c) There are obvious differences in the factors that affect the out‐strength and in‐strength based on panel data regression model, but turnover rate, jump volatility, firm size and growth rate of total assets are the common driving factors.
Using the CAViaR tool to estimate the value-at-risk (VaR) and the Granger causality risk test to quantify extreme risk spillovers, we propose an extreme risk spillover network for analysing the ...interconnectedness across financial institutions. We construct extreme risk spillover networks at 1% and 5% risk levels (which we denote 1% and 5% VaR networks) based on the daily returns of 84 publicly listed financial institutions from four sectors-banks, diversified financials, insurance and real estate-during the period 2006-2015. We find that extreme risk spillover networks have a time-lag effect. Both the static and dynamic networks show that on average the real estate and bank sectors are net senders of extreme risk spillovers and the insurance and diversified financials sectors are net recipients, which coheres with the evidence from the recent global financial crisis. The networks during the 2008-2009 financial crisis and the European sovereign debt crisis exhibited distinctive topological features that differed from those in tranquil periods. Our approach supplies new information on the interconnectedness across financial agents that will prove valuable not only to investors and hedge fund managers, but also to regulators and policy-makers.
Financial inclusion is crucial to a country's competitiveness while green economy emerges as a policy priority along the sustainable development path, but how will they interact? This study examines ...the relationship between the two in the context of China, which is on the transition to a green economy based on city level data for 2011-2015. A multidimensional measurement of financial inclusion is established by considering the rapidly developing digital finance, and the measurement of green economic efficiency by applying the MinDW model. Results indicate that the development of financial inclusion can enhance green economic efficiency, which is mainly realized through the strengthening of the credit constraints on high-polluting firms. The findings provide further implications for implementing a financial development policy and maintain a balanced relationship between the government, financial institutions, and firms.
Theory attributes finance with the ability to both promote growth and reduce output volatility, and therefore increase energy security. But evidence is mixed, partly due to endogeneity effects. For ...example, financial institutions themselves might be a source of volatility, as the events of 2008 suggest. We address this endogeneity issue by using periods of extreme oil price volatility as a source of nearly exogenous volatility, to study the effect of finance. To do this, we develop a quasi-natural experiment and study the effect of the dramatic decline of oil prices in 2014, using a synthetic control methodology. Our hypothesis is that the ability of oil-rich countries to mitigate the effects of this decline rested on the quality of their financial institutions. We focus on 11 oil-rich countries between 2006Q1 and 2016Q4 that had “poor” measures of financial development (treatment group) out of 20 such countries and synthetically create counterfactuals from the remaining (control) group with “superior” financial development. We subject both to the oil price shock of 2014 and find evidence that better financial institutions do indeed reduce output volatility and mitigate its negative effect on growth in the year that showed a sustained decline in oil price. To address any remaining potential endogeneity between oil prices and finance, we use a cross-sectionally augmented autoregressive distributed lag model with data on 30 oil-producing countries over the period 1980–2016, and confirm that the effects of oil volatility on growth is mitigated with better financial institutions. Our results make a strong case for the support of the positive role of financial development in improving energy security and fostering growth.
•Oil price volatility is found to adversely affect output growth and volatility.•The prevailing identification and endogeneity issues are addressed with our method.•Financial institutions are found to moderate the ill effects of oil price volatility.•With better finance adjusting oil output levels to stabilize revenue is less needed.•Better finance has the potential to increase global energy security without compromising growth.
We propose several econometric measures of connectedness based on principal-components analysis and Granger-causality networks, and apply them to the monthly returns of hedge funds, banks, ...broker/dealers, and insurance companies. We find that all four sectors have become highly interrelated over the past decade, likely increasing the level of systemic risk in the finance and insurance industries through a complex and time-varying network of relationships. These measures can also identify and quantify financial crisis periods, and seem to contain predictive power in out-of-sample tests. Our results show an asymmetry in the degree of connectedness among the four sectors, with banks playing a much more important role in transmitting shocks than other financial institutions.
This paper summarizes the first publicly available, user-side data set of indicators that measure how adults in 148 countries save, borrow, make payments, and manage risk. We use the data to ...benchmark financial inclusion—the share of the population that uses formal financial services—in countries around the world, and to investigate the significant country- and individual-level variation in how adults use formal and informal financial systems to manage their day-to-day finances and plan for the future. The data show that 50 percent of adults worldwide are "banked," that is, have an account at a formal financial institution, but also that account penetration varies across countries by level of economic development and across income groups within countries. For the half of all adults around the world who remain unbanked, the paper documents reported barriers to account use, such as cost, distance, and documentation requirements, which may shed light on potential market failures and provide guidance to policymakers in shaping financial inclusion policies.
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