Fulltext

Price Contagion through Balance Sheet Linkages

Capponi, Agostino ; Larsson, Martin

In: The Review of Asset Pricing Studies, 2015, vol. 5, no. 2, p. 227-253

Ajouter à la liste personnelle
    Titre
    • Price Contagion through Balance Sheet Linkages
    Auteur
    • Capponi, Agostino. Industrial Engineering and Operations Research Department, Columbia University
    • Larsson, Martin. Department of Mathematics, ETH Zurich
    Type de document
    • Postprint
    Langue
    • Anglais
    Publié dans
    • The Review of Asset Pricing Studies, 2015, vol. 5, no. 2, p. 227-253. Oxford University Press
    Autre version électronique
    Identifiant OAI-PMH
    • oai:doc.rero.ch:303815
    Summary
    We study price linkages between assets held by financial institutions that maintain fixed capital structures over time. Firms in the banking sector manage their leverage ratios to conform to prespecified levels. Our analysis suggests that regulatory policies aimed at stabilizing the system by imposing capital constraints on banks may have unintended consequences: banks' deleveraging activities may amplify asset return shocks and lead to large fluctuations in realized returns. The same mechanism can cause spillover effects, where assets held by leverage targeting banks can experience hikes or drops caused by shocks to otherwise unrelated assets held by the same banks. (JEL G10, G12, G21, G38)