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Working Paper
Measuring systemic risk
We present a simple model of systemic risk and show how each financial institution?s contribution to systemic risk can be measured and priced. An institution?s contribution, denoted systemic expected shortfall (SES), is its propensity to be undercapitalized when the system as a whole is undercapitalized, which increases in its leverage, volatility, correlation, and tail-dependence. Institutions internalize their externality if they are ?taxed? based on their SES. Through several examples, we demonstrate empirically the ability of components of SES to predict emerging systemic risk during the ...
Conference Paper
CEO incentives and earnings management
Conference Paper
No-arbitrage Taylor rules - comments
Report
Have financial markets become more informative?
The finance industry has grown. Financial markets have become more liquid. Information technology has improved. But have prices become more informative? Using stock and bond prices to forecast earnings, we find that the information content of market prices has not increased since 1960. The magnitude of earnings surprises, however, has increased. A baseline model predicts that as the efficiency of information production increases, prices become more disperse and covary more strongly with future earnings. The forecastable component of earnings improves capital allocation and serves as a direct ...