The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Search results: 3.
Fire Sales in a Model of Complexity
Published: 11/12/2013, Volume: 68, Issue: 6 | DOI: 10.1111/jofi.12087 | Cited by: 264
RICARDO J. CABALLERO, ALP SIMSEK
We present a model of financial crises that stem from endogenous
complexity
. We conceptualize complexity as banks'
uncertainty
about the financial network of cross exposures. As conditions deteriorate, cross exposures generate the possibility of a domino effect of bankruptcies. As this happens, banks face an increasingly complex environment since they need to understand a greater fraction of the financial network to assess their own financial health. Complexity dramatically amplifies banks' perceived counterparty risk, and makes relatively healthy banks reluctant to buy risky assets. The model also features a novel
complexity externality
.
Monetary Policy and Asset Price Overshooting: A Rationale for the Wall/Main Street Disconnect
Published: 4/12/2024, Volume: 79, Issue: 3 | DOI: 10.1111/jofi.13343 | Cited by: 6
RICARDO J. CABALLERO, ALP SIMSEK
We analyze optimal monetary policy and its implications for asset prices when aggregate demand has inertia. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (above their steady‐state levels consistent with current potential output). Overshooting leads to a temporary disconnect between the performance of financial markets and the real economy, but accelerates the recovery. When there is a lower bound constraint on the discount rate, good macroeconomic news is better news for asset prices when the output gap is more negative. Finally, we document that during the COVID‐19 recovery, the policy‐induced overshooting was large.
Structural Shifts in Credit Rating Standards
Published: 11/12/2013, Volume: 68, Issue: 6 | DOI: 10.1111/jofi.12070 | Cited by: 204
AYSUN ALP
I examine the time‐series variation in corporate credit rating standards from 1985 to 2007. A divergent pattern exists between investment‐grade and speculative‐grade rating standards from 1985 to 2002 as investment‐grade standards tighten and speculative‐grade loosen. In 2002, a structural shift occurs toward more stringent ratings. Holding characteristics constant, firms experience a drop of 1.5 notches in ratings due to tightened standards from 2002 to 2007. Credit spread tests suggest that the variation in standards is not completely due to changes in the economic climate. Rating standards affect credit spreads. Loose ratings are associated with higher default rates.