What Does a Financial Policy Shock Do? Some Evidence From the ‘Too Big to Fail’ Financial Institutions

59 Pages Posted: 2 Jun 2020

See all articles by Cristina Danciulescu

Cristina Danciulescu

Tulane University - Finance & Economics

Date Written: March 2, 2020

Abstract

This paper investigates the effects of SEC intervention from July 15, 2008 on the stability of “too big to fail” corporations. We show that:

1. SEC policy intervention maps to shocks in stock market variables,

2. stock market variables and a policy intervention indicator variable are informative in predicting corporate bond market variables,

3. in sharp contrast to the literature, the stabilizing effect of SEC intervention depends on the correlation between shocks to several stock variables and their transmission mechanism to the corporate bond variables,

4. for struggling institutions this policy intervention has much higher and in some cases opposite effects that last longer.

Keywords: Financial Policy Shock, “Too Big to Fail”, Multiple Sources of Uncertainty, Bidirectional Causalities

JEL Classification: G18, G28, C54

Suggested Citation

Danciulescu, Cristina, What Does a Financial Policy Shock Do? Some Evidence From the ‘Too Big to Fail’ Financial Institutions (March 2, 2020). Available at SSRN: https://ssrn.com/abstract=3592301 or http://dx.doi.org/10.2139/ssrn.3592301

Cristina Danciulescu (Contact Author)

Tulane University - Finance & Economics ( email )

A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States

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