Article: Risk, uncertainty, and leverage.
Economic modelling
2020 Volume 91, Page(s) 257–273
Abstract: Using mostly theoretical models and traditional risk/uncertainty measures (VIX index, panic, precaution, scary bad news, etc.), the current literature tries to clarify the risk/uncertainty-deleveraging pattern. The findings are not sufficient to explain ... ...
| Abstract | Using mostly theoretical models and traditional risk/uncertainty measures (VIX index, panic, precaution, scary bad news, etc.), the current literature tries to clarify the risk/uncertainty-deleveraging pattern. The findings are not sufficient to explain the dynamic empirical relationship between modern risk/uncertainty indicators and leverage. We fill this gap in the literature by using US quarterly data, from 1985:1 to 2018:4, Granger causality tests, and a structural vector autoregression model. We find that commercial bank leverage rises when geopolitical risk and macroeconomic, policy, and equity uncertainty increase. Client-based business relationships of banks and high government borrowing from banks during crises periods are responsible for this relationship. We find that the leverage of broker-dealers and shadow banks declines when Chicago risk and macroeconomic, policy, financial, and equity uncertainty increase. We argue that the vulnerability of broker-dealers and shadow banks to the risk/uncertainty of the entire market system is responsible for this relationship. |
|---|---|
| Keywords | covid19 |
| Language | English |
| Publishing date | 2020-06-26 |
| Publishing country | England |
| Document type | Journal Article |
| ISSN | 0264-9993 |
| ISSN | 0264-9993 |
| DOI | 10.1016/j.econmod.2020.06.010 |
| Database | MEDical Literature Analysis and Retrieval System OnLINE |
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