Financial Flexibility, Bank Capital Flows, and Asset Prices

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 r...

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Bibliographic Details
Published in:The Journal of finance (New York) 2012-10, Vol.67 (5), p.1685-1722
Main Authors: PARLOUR, CHRISTINE A., STANTON, RICHARD, WALDEN, JOHAN
Format: Article
Language:English
Subjects:
Applied general equilibrium models
Asset pricing
Bank assets
Bank capital
Bank stocks
Banking
Banking crises
Banking industry
Capital flow
Capital investments
Capital market
Capital mobility
Capital movement
Capital returns
Economic development
Economic modeling
Economic models
Expected returns
Financial economics
Market prices
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Summary: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.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2012.01770.x