The seed of a crisis: Investor sentiment and bank liquidity

Liang He

Finance Research Letters, 2019, vol. 29, issue C, 152-155

Abstract: This paper investigates the role of investor sentiment in bank liquidity. I argue that investor sentiment provides banks with a natural hedge against liquidity risk in normal times. However, banks are unaware that such hedge becomes invalid during a prolonging distress. I show that these together contribute to the excessive growth of credit lines in market booms, which may in turn plant the seed of a potential liquidity crisis.

Keywords: Investor sentiment; Bank liquidity; Credit lines; Arbitrage risk (search for similar items in EconPapers)
JEL-codes: G11 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:29:y:2019:i:c:p:152-155

DOI: 10.1016/j.frl.2018.06.014

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