Abstract

http://ssrn.com/abstract=1323670
 
 

References (26)



 


 



Credit Crunch, Creditor Protection, and Asset Prices


Galina Hale


Federal Reserve Bank of San Francisco

Assaf Razin


Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Hui Tong


International Monetary Fund (IMF)

August 31, 2008

HKIMR Working Paper No. 16/2008

Abstract:     
In a Tobin's q model with productivity and liquidity shocks, we study the mechanism through which strong creditor protection increases the level and lowers the volatility of stock market prices. There are two channels at work: (1) the Tobin's q value under a credit crunch regime increases with creditor protection; and, (2) the probability of a credit crunch falls for given stochastic processes of underlying shocks when creditor protection improves.

We test these predictions by using cross-country panel regressions of the stock market price level and volatility, in 40 countries, over the period from 1984 to 2004, at annual frequency. We create indicators for liquidity shocks based on quantity and price measures. Estimated probabilities of big shocks to liquidity are used as forecasts of credit crunch. We find broad empirical support for the hypothesis that creditor protection increases the stock market price level and reduces its volatility directly and via its negative effect on the probability of credit crunch. Our empirical findings are robust to multiple specifications.

Number of Pages in PDF File: 42

working papers series


Download This Paper

Date posted: January 7, 2009  

Suggested Citation

Hale, Galina and Razin, Assaf and Tong, Hui, Credit Crunch, Creditor Protection, and Asset Prices (August 31, 2008). HKIMR Working Paper No. 16/2008. Available at SSRN: http://ssrn.com/abstract=1323670 or http://dx.doi.org/10.2139/ssrn.1323670

Contact Information

Galina Hale
Federal Reserve Bank of San Francisco ( email )
101 Market Street
San Francisco, CA 94105
United States
415-974-3131 (Phone)
415-974-2168 (Fax)
HOME PAGE: http://www.sf.frb.org/economics/economists/index.html
Assaf Razin (Contact Author)
Tel Aviv University - Eitan Berglas School of Economics ( email )
P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Hui Tong
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
Feedback to SSRN


Paper statistics
Abstract Views: 549
Downloads: 85
Download Rank: 168,228
References:  26

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.547 seconds