Abstract

http://ssrn.com/abstract=1510527
 
 

References (26)



 
 

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When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009


Marcin T. Kacperczyk


Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)

Philipp Schnabl


New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

November 2009

NBER Working Paper No. w15538

Abstract:     
Commercial paper is one of the largest money market instruments and has long been viewed as a safe haven for investors seeking low risk. However, during the financial crisis of 2007-2009, the commercial paper market experienced twice the modern-day equivalent of a bank run with investors unwilling to refinance maturing commercial paper. We analyze the supply of and demand for commercial paper and show that, in contrast to previous turbulent episodes, the crisis centered on commercial paper issued by, or guaranteed by, financial institutions. We describe the importance of Federal Reserve’s interventions in restoring stability of the market. Finally, we propose three possible explanations for the sharp decline of the commercial paper market: substitution to alternative sources of financing by commercial paper issuers, adverse selection, and institutional constraints among money market funds.

Number of Pages in PDF File: 40

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Date posted: November 24, 2009  

Suggested Citation

Kacperczyk, Marcin T. and Schnabl, Philipp, When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009 (November 2009). NBER Working Paper No. w15538. Available at SSRN: http://ssrn.com/abstract=1510527

Contact Information

Marcin T. Kacperczyk (Contact Author)
Imperial College London - Accounting, Finance, and Macroeconomics ( email )
South Kensington campus
London SW7 2AZ
United Kingdom
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Philipp Schnabl
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/pschnabl/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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