The Flight from Maturity

Gary Gorton, Andrew Metrick and Lei Xie

No 20027, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Why did the failure of Lehman Brothers make the financial crisis dramatically worse? The financial crisis was a process of a build-up of risk during the crisis prior to the Lehman failure. Market participants tried to preserve an option or exit by shortening maturities - the "flight from maturity". With increasingly short maturities, lenders created the possibility of fast exit. The failure of Lehman Brothers was the tipping point of this build-up of systemic fragility. We produce a chronology of the crisis which formalizes the dynamics of the crisis. A crisis is a dynamic process in which "tail risk" is endogenous.

JEL-codes: E32 E42 E44 G01 (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-ban and nep-mac
Note: AP CF EFG ME
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Citations: View citations in EconPapers (7)

Published as Gary Gorton & Andrew Metrick & Lei Xie, 2020. "The flight from maturity," Journal of Financial Intermediation, .

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