Premium
Financial Flexibility, Bank Capital Flows, and Asset Prices
Author(s) -
PARLOUR CHRISTINE A.,
STANTON RICHARD,
WALDEN JOHAN
Publication year - 2012
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2012.01770.x
Subject(s) - financial intermediary , consumption based capital asset pricing model , business , capital requirement , dividend , capital asset pricing model , financial system , basis risk , asset (computer security) , capital adequacy ratio , monetary economics , economics , finance , financial economics , microeconomics , incentive , computer security , computer science
In our parsimonious general‐equilibrium model of banking and asset pricing, intermediaries have the expertise to monitor and reallocate capital. We study financial development, intraeconomy capital flows, the size of the banking sector, the value of intermediation, expected market returns, and the risk of bank crashes. Asset pricing implications include: a market's dividend yield is related to its financial flexibility, and capital flows should be important in explaining expected returns and the risk of bank crashes. Our predictions are broadly consistent with the aggregate behavior of U.S. capital markets since 1950.