Search Results
Journal Article
The federal government's budget surplus: Cause for celebration?
Projected surpluses in the federal government's budget have generated fanfare sometimes verging on euphoria. Because the federal government last had a surplus in 1969, a projected surplus for fiscal year 1998 and later years is being viewed as something of a milestone. Unlike policies of the last three decades that have at least paid lip service to lowering the deficit, policy options now may include ways to use the surplus. Some have called for lowering taxes and others for increasing expenditures or retiring federal government debt. ; This article discusses the importance of going beyond ...
Journal Article
Wildcat banking, banking panics, and free banking in the United States
Banks in the United States issued currency with no oversight of any kind by the federal goverment from 1837 to 1865. Many of these banks were part of "free banking" systems with no discretionary approval of entry into banking, and these banks issued notes that were used for payments in transactions just as Federal Reserve notes are today. There was no central bank or goverment insurance, and the ultimate guarantee of the value of a bank's notes was the value of the bank's assets. As the author indicates, these banknotes have similarities to some forms of electronic money. ; Free banking in ...
Journal Article
Preface: hedge funds: creators of risk?
Conference Paper
Vintage and credit rating: what matters in the ABX data during the credit crunch?
The mortgage backed securities market has dramatically declined during the credit crunch of 2007-2008. To understand the factors driving its demise we utilise a latent factor model representing common effects, asset rating effects, vintage of issuance effects and liquidity effects - extending the recent representation of CDO pricing in Longstaff and Rajan (2008). Common and liquidity effects are shown to have an increasing influence on the performance of the ABX-HE indices, with the role of vintage factors changing dramatically over the sample period of January 2006 to May 2008. Consistent ...
Working Paper
Banking reform
Working Paper
Are stocks in new industries like lottery tickets?
We examine the distribution of returns in new industries to determine whether stocks in new industries are similar to lottery tickets. We focus on one characteristic of lottery tickets: negative expected returns. We examine data from the United States on sellers of own-brand personal computers, airlines and airplane manufacturers, automobile manufacturers, railroads, and telegraphs. A relatively small number of companies generate outstanding returns in some industries. We find no evidence of low expected returns. On the contrary, firms in new industries typically have high volatility of ...
Working Paper
Bank failures in banking panics: Risky banks or road kill?
Are banks that fail in banking panics the riskiest ones prior to the panics? The free banking era in the United States provides useful data to examine this question because the assets held by the banks were traded at the New York Stock Exchange. The authors estimate the ex ante riskiness of a bank?s portfolio by examining the portfolio relative to mean-variance frontiers and by examining the bank's leverage and notes relative to assets. The authors find that the ex ante riskiness of a bank?s portfolio helps predict which banks fail and the extent of noteholders? losses in the event of failure.
Working Paper
Index arbitrage and nonlinear dynamics between the S&P 500 futures and cash
We use a cost of carry model with nonzero transactions costs to motivate estimation of a nonlinear dynamic relationship between the S&P 500 futures and cash indexes. Discontinuous arbitrage suggests that a threshold error correction mechanism may characterize many aspects of the relationship between the futures and cash indexes. We use minute-by-minute data on the S&P 500 futures and cash indexes. The results indicate that nonlinear dynamics are important and related to arbitrage and suggest that arbitrage is associated with more rapid convergence of the basis to the cost of carry than would ...
Conference Paper
Suspension of payments and bank failures