We design a novel test for changes in market discipline based on the relation between firm-specific risk, credit spreads, and equity returns. We use our method to analyze the evolution of bailout expectations during the recent financial crisis. We find that bailout expectations peaked in reaction to government interventions following the failure of Lehman Brothers, and returned to pre-crisis levels following the initiation of the Dodd-Frank Act. We do not find such changes in market discipline for nonfinancial firms. Finally, market discipline is weaker for government-sponsored enterprises (GSEs) and systemically important banks (SIBs) than for investment banks.

Taking an intraday perspective, we study the dynamics of individual-level stock return volatility, measured by absolute 5-minute returns, and Twitter sentiment and activity. After accounting for the intraday periodicity in absolute returns, we discover some statistically significant co-movements of intraday volatility and information from stock-related Tweets for all constituents of the Dow Jones Industrial Average. However, economically, the effects are of negligible magnitude and out-of-sample forecast performance is not improved when including Twitter sentiment and activity as exogenous variables. From a practical point of view, we find that high-frequency Twitter information is not particularly useful for highly active investors with access to such data for intraday volatility assessment and forecasting when considering individual-level stocks.