NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Matthew Baron

Johnson Graduate School of Management
Cornell University
401J Sage Hall
Ithaca, NY 14853-6201
Tel: 607-255-8686

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Institutional Affiliation: Cornell University

NBER Working Papers and Publications

March 2020Banking Crises without Panics
with Emil Verner, Wei Xiong: w26908
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 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 can be 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...
September 2016Credit Expansion and Neglected Crash Risk
with Wei Xiong: w22695
By analyzing 20 developed countries over 1920–2012, we find the following evidence of overoptimism and neglect of crash risk by bank equity investors during credit expansions: 1) 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; 2) 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 3) 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 ...

Published: Matthew Baron & Wei Xiong, 2017. "Credit Expansion and Neglected Crash Risk*," The Quarterly Journal of Economics, vol 132(2), pages 713-764. citation courtesy of

 
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