Market sentiment, financial fragility, and economic activity: The role of corporate securities issuance
No 2021/6, Discussion Papers from Free University Berlin, School of Business & Economics
Using new quarterly U.S. data for the past 120 years, I show that sudden reversals in equity and credit market sentiment approximated by several measures of corporate securities issuance are highly predictive of banking crises and recessions. Deviations in equity issuance from historical averages also help to explain economic activity over the business cycle. Crises and recessions often occur independently of domestic leverage, making the credit-to-GDP gap a deficient early-warning indicator historically. The fact that equity issuance reversals predict banking crises without elevated private credit levels, suggests that changes in investor sentiment can trigger financial crises even in the absence of underlying banking fragility.
Keywords: Corporate securities issuance; market sentiment; nancial fragility; banking crises; recessions (search for similar items in EconPapers)
JEL-codes: E32 G01 G32 G41 N11 N12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-cwa, nep-fdg, nep-his and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:20216
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