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Institutional Affiliation: AQR Capital
NBER Working Papers and Publications
|April 2014||The Flight from Maturity|
with , : w20027
Why did the failure of Lehman Brothers make the financial crisis dramatically worse? The financial crisis was a process of a build-up of risk during the crisis prior to the Lehman failure. Market participants tried to preserve an option or exit by shortening maturities - the "flight from maturity". With increasingly short maturities, lenders created the possibility of fast exit. The failure of Lehman Brothers was the tipping point of this build-up of systemic fragility. We produce a chronology of the crisis which formalizes the dynamics of the crisis. A crisis is a dynamic process in which "tail risk" is endogenous.
Published: Gary Gorton & Andrew Metrick & Lei Xie, 2020. "The flight from maturity," Journal of Financial Intermediation, .