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Working Paper
Time-varying Persistence of House Price Growth: The Role of Expectations and Credit Supply
Chudik, Alexander; Smallwood, Aaron; Choi, Chi-Young (2024-05-15)
High persistence is a prominent feature of price movements in U.S. housing markets, i.e., house prices grow faster this period if they grew faster last period. This paper provides two additional new insights to the literature on U.S. house price movements. First, there exists a significant time variation in the persistence of house price growth, both at the national and city level. Second, there is considerable heterogeneity in the time-varying persistence across different regions, particularly in areas that were historically less persistent, such as the capital-poor regions in the Midwest ...
Globalization Institute Working Papers , Paper 426

Working Paper
Technology Providers and Financial Stability: Overview of Risks and Regulatory Frameworks
Garza, Lorenzo; Chmielewski, Rebecca; Schulhofer-Wohl, Sam; Cowperthwait, Patricia K.; Cho, Meeoak; Amromin, Gene; Solimine, Brett; Anadu, Kenechukwu E.; Sanders, Siobhan; Chapel, Amy; Weiss, Emma; Hull, Cindy E.; Bräuning, Falk (2025-06-23)
Technology-focused Third-Party Service Providers (TPSPs) have become important players in the operations of financial institutions and the financial markets. This paper summarizes micro- and macro-prudential regulatory frameworks in place to address risks that TPSPs pose to the financial system. The key takeaways are as follows: First, in the U.S., TPSPs operate under limited comprehensive prudential regulatory oversight, aimed primarily at ensuring that their products are safe and resilient on an ongoing basis. Second, while banks rely on multiple TPSPs and hundreds of their services daily ...
Working Paper Series , Paper WP 2025-08

Newsletter
The Role of Primary Dealers in Mitigating Liquidity Risk at U.S. Central Counterparties
Hull, Cindy E.; Solimine, Brett (2025-08)
In this article, we examine the role of primary dealers as clearing members at U.S. central counterparties (CCPs) and their importance in liquidity risk management at those CCPs. We find that primary dealers are key contributors to concentration in central clearing—they make up a significant portion of clearing members and an even larger portion of activity cleared by U.S. CCPs. Second, we find that primary dealers are a major source of interconnectedness across U.S. CCPs. Further, we estimate that the bulk of clearing activity in the U.S. is conducted by the primary dealers that are also ...
Chicago Fed Letter , Volume 510 , Pages 8

Working Paper
End of an Era: The Coming Long-Run Slowdown in Corporate Profit Growth and Stock Returns
Smolyansky, Michael (2023-06-26)
I show that the decline in interest rates and corporate tax rates over the past three decades accounts for the majority of the period’s exceptional stock market performance. Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019. In addition, the decline in risk-free rates alone accounts for all of the expansion in price-to-earnings multiples. I argue, however, that the boost to profits and valuations from ever-declining interest and corporate tax rates is unlikely to continue, indicating significantly ...
Finance and Economics Discussion Series , Paper 2023-041

Working Paper
Learning from History : Volatility and Financial Crises
Valenzuela, Marcela; Daníelsson, Jón; Zer, Ilknur (2016-10)
We study the effects of volatility on financial crises by constructing a cross-country database spanning over 200 years. Volatility is not a significant predictor of crises whereas unusually high and low volatilities are. Low volatility is followed by credit build-ups, indicating that agents take more risk in periods of low financial risk consistent with Minsky hypothesis, and increasing the likelihood of a banking crisis. The impact is stronger when financial markets are more prominent and less regulated. Finally, both high and low volatilities make stock market crises more likely, while ...
Finance and Economics Discussion Series , Paper 2016-093

Report
Dynamic Leverage Asset Pricing
Shin, Hyun Song; Adrian, Tobias; Moench, Emanuel (2013-08-01)
We empirically investigate predictions from alternative intermediary asset pricing theories. The theories distinguish themselves in their use of intermediary equity or leverage as pricing factors or forecasting variables. We find strong support for a parsimonious dynamic pricing model based on broker-dealer leverage as the return forecasting variable and shocks to broker-dealer leverage as a cross-sectional pricing factor. The model performs well in comparison to other intermediary asset pricing models as well as benchmark pricing models, and extends the cross-sectional results by Adrian, ...
Staff Reports , Paper 625

Working Paper
Open Source Cross-Sectional Asset Pricing
Chen, Andrew Y.; Zimmermann, Tom (2021-06-23)
We provide data and code that successfully reproduces nearly all crosssectional stock return predictors. Our 319 characteristics draw from previous meta-studies, but we differ by comparing our t-stats to the original papers' results. For the 161 characteristics that were clearly significant in the original papers, 98% of our long-short portfolios find t-stats above 1.96. For the 44 characteristics that had mixed evidence, our reproductions find t-stats of 2 on average. A regression of reproduced t-stats on original longshort t-stats finds a slope of 0.90 and an R2 of 83%. Mean returns ...
Finance and Economics Discussion Series , Paper 2021-037

Working Paper
Credit Default Swaps
Bomfim, Antulio N. (2022-05-06)
Credit default swaps (CDS) are the most common type of credit derivative. This paper provides a brief history of the CDS market and discusses its main characteristics. After describing the basic mechanics of a CDS, I present a simple valuation framework that focuses on the relationship between conditions in the cash and CDS markets as well as an approach to mark to market existing CDS positions. The discussion highlights how the 2008 global financial crisis helped shape current practices and conventions in the CDS market, including the widespread adoption of standardized coupons and upfront ...
Finance and Economics Discussion Series , Paper 2022-023

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