On reaching for yield and the coexistence of bubbles and negative bubbles

Acharya, Viral V.; Naqvi, Hassan

doi:10.1016/j.jfi.2018.08.001

Cited by 57 publications

(22 citation statements)

References 20 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Nemoto [23] finds that credit availability positively affects prices, and thus the more credit is supplied the higher the asset prices. Acharya and Naqvi [24] also verify that monetary loosening induces investors to higher returns and as a result to bubble amplification. Wang et al [25] study the banking stability in conjunction with asset bubbles.…”

Section: Literature Reviewmentioning

confidence: 88%

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Perifanis¹

2019

Energies

View full text Add to dashboard Cite

Oil prices have had considerable surges and bursts since the first oil crisis of 1973. Until then its price was stable, with almost zero volatility. Since then, apart from the two oil crises of 1973 and 1978/9, oil prices had consecutive bubble episodes like the surges up to 2008 and 2014 and their successive bursts, respectively. The trace of these bubble periods is of crucial importance for policymakers, since their drivers and consequences impact global economic developments. Phillips et al. and Phillips et al. methodologies are applied to detect whether West Texas Intermediate prices experienced bubble periods. Both methodologies suggest that WTI prices experienced explosive episodes, which could be fundamentally, speculatively, or politically attributed. Some suggested periods coincide for both methods, but the second methodology seems to be more sensitive than its predecessor is, leading to better bubble detection but also to identification of non-existent bubbles. The identified bubble periods are compared to relevant research in the literature concerning their presence, duration, and explosiveness. The main goal of the research, apart from the detection of bubbles’ presence and duration, is to identify the causal underlying reasons for each explosive episode. Further, we compare the start and endpoints of each bubble episode with time-points when structural changes occurred. The contribution of the paper is that it clearly defines the bubble episodes with their corresponding drivers. The paper identifies the importance of market fundamentals’ swifts in explaining the bubble periods. The findings of the papers can help policymakers and other stakeholders to monitor oil price shifts and their underlying reasons, and then proceed with prompt actions. Since bubble episodes are fundamentally explained, then the practical utility is that by focusing on the market fundamentals, stakeholders can avoid actions that could result in market failures.

show abstract

Section: Literature Reviewmentioning

confidence: 88%

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Perifanis¹

2019

Energies

View full text Add to dashboard Cite

show abstract

“…We start by examining whether term structure variables predict reaching for yield by corporate bond funds. Theoretically, Feroli et al (2014) and Acharya and Naqvi (2015) show that asset managers reach for yield when interest rates are low. But it is an open empirical question whether fund managers are actually more likely to engage in reaching for yield in low interest rate environments.…”

Section: Introductionmentioning

confidence: 99%

Reaching for Yield in Corporate Bond Mutual Funds

Choi

Kronlund

2017

The Review of Financial Studies

196

View full text Add to dashboard Cite

We study reaching for yield among corporate bond mutual funds. In a low-interest-rate environment, funds may seek to invest in bonds with relatively higher yields than their benchmarks in order to attract flows. We show that funds engage in more reaching for yield when the level and slope of the yield curve are low and when the default spread is narrow. The funds that engage in reaching for yield are also exposed to greater illiquidity, exacerbating redemption risks. Younger and larger funds engage in more reaching for yield. When funds actively shift their portfolio towards higher yields, they experience higher inflows, indicating that investors respond positively to this behavior. Funds that * We thank Charles Trzcinka and seminar participants at the

show abstract

“…In a similar spirit to our paper, Lian et al (2019) conclude that US household investment decisions are characterised by reaching for yield when monetary policy is expansive (low short- 3 In theoretical models of the risk-taking channel of monetary policy, a reduction in the policy rate causes higher risk-taking by financial institutions, resulting in lower risk premia and amplifying the magnitude of the interest rate cut. These models highlight the role of leverage (Adrian and Shin, 2010), funding conditions (Drechsler et al, 2018), and institutional frictions (Acharya and Naqvi, 2019). Moreover, some financial institutions, such as pension funds, have long-term liabilities which, when discounted at low interest rates, are increasingly difficult to be met unless more risk is taken on the asset side through higher yielding investments (Lucas and Zeldes, 2009;Rajan, 2011).…”

Section: Introductionmentioning

confidence: 99%

Credit supply shocks and household leverage: Evidence from the US banking deregulation

Brown

Gray

Montagnoli

2019

Journal of Financial Stability

View full text Add to dashboard Cite

We show that expansionary monetary policy is associated with higher household portfolio allocation to high risk assets and lower allocation to low risk assets, in line with "reaching for yield" behaviour. Our findings are based on analysis of US household level panel data using two measures of monetary policy shifts over the period 1999-2007. We also show that the impact of monetary policy changes is stronger for active investors. In addition, our hurdle model estimates reveal that monetary shocks strongly affect the decision to hold high risk assets, but not the decision to hold low risk assets. Finally, our results highlight the role of self-reported risk attitudes as well as that of mortgage-holder status in affecting the response of household portfolios to monetary policy changes.

show abstract

On reaching for yield and the coexistence of bubbles and negative bubbles

Cited by 57 publications

References 20 publications

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Reaching for Yield in Corporate Bond Mutual Funds

Credit supply shocks and household leverage: Evidence from the US banking deregulation

Contact Info

Product

Resources

About