We study the connection between the global liquidity crisis and the severe credit crunch experienced by finance companies (SOFOLES) in Mexico using firm-level data between 2001 and 2011. Our results provide supporting evidence that, as a result of the liquidity shock, SOFOLES faced severely restricted access to their main funding sources (commercial bank loans, loans from other organizations, and public debt markets). After controlling for the potential endogeneity of their funding, we find that the liquidity shock explains 64 percent of SOFOLES’ credit contraction during the recent financial crisis (2008–2009). We use our estimates to disentangle supply from demand factors as determinants of the credit contraction. After controlling for the large decline in loan demand during the financial crisis, our findings suggest that supply factors (such as nonperforming loans and lower liquidity buffers) also played a significant role. Finally, we find that financial deregulation implemented in 2006 may have amplified the effects of the global liquidity shock.

This study finds that equity returns in the banking sector in the wake of the Great Recession and the European sovereign debt crisis have been driven mainly by weak growth prospects and heightened sovereign risk; and to a lesser extent by deteriorating funding conditions and investor sentiment. While the equity return performance in the banking sector has been dismal in general, there is some evidence that better capitalized and less leveraged banks have outperformed their peers in times of stress.

Despite their documented importance in the labor market, little is known about how workers use social networks to find jobs and their resulting effect on earnings. I use geographically detailed US employer-employee data to infer the role of social networks in connecting workers to jobs in high-paying firms. To identify social interactions in job search, I exploit variation in social network quality within small neighborhoods. Workers are more likely to change jobs, and more likely to move to a higher-paying firm, when their neighbors are employed in high-paying firms. Furthermore, local referral networks help match high-ability workers to high-paying firms.

Recent empirical findings have cast doubt on the neoclassical model of labor supply. However, estimation issues, and not workers’ behavior, may be responsible for these findings. This paper investigates this possibility by examining the daily labor supply of Florida lobster fishermen. I invariably find that fishermen work more when earnings are temporarily high, behavior that is consistent with a neoclassical model of labor supply. Furthermore, methods that do not control for measurement error and endogeneity of the wage not only produce downward-biased estimates of labor supply elasticities but also generate a spurious negative and significant elasticity of daily hours.

We analyze the relationship between the stance of monetary policy and the implicit risk aversion in European Stock market prices in an international open-economy framework. We use a structural vector autoregression (SVAR) model that incorporates the effect of a factor that reflects the global monetary policy stance. We use shocks in the US Fed monetary policy stance as a proxy of this global factor. Our results indicate mixed evidence depending on whether simultaneity between domestic monetary policy stance and the stock market behavior is taken into full account. When this simultaneity is not allowed we confirm previous evidence found in the literature, extended to the international field: a lax monetary policy, both domestic and global, decreases risk aversion. However, when we take this into account, results indicate that a lax monetary policy increase in the short-run the risk aversion of the domestic representative investor.

This paper investigates the effect of corporate diversification on the pricing of bank-loan contracts. We find that diversified firms have significantly lower loan rates than comparable focused firms, and we find no evidence that diversified firms are subject to more restrictive non-price contract terms pertaining to maturity, collateral requirements, and covenant restrictions. We show that the effect of diversification on the cost of a bank loan is channeled primarily through coinsurance in investment opportunities and cash flows and that the effect is nonlinear: as the extent of corporate diversification grows, the cost-reduction benefit of diversification decreases. Our results indicate that the organizational structure of the firm can alleviate its external financing constraints and that it has an important bearing on the firm’s financing capacity.

We examine the economic determinants of short-sale supply, and its consequences for future stock returns. Lendable supply increases with expected borrowing costs and decreases with financial statement constructs that indicate overvaluation. Although rising loan fees help ease supply constraints, we find shares are still least available when they are most attractive to short sellers. Using a number of firm characteristics, we derive useful instruments for real-time loan supply and demand conditions in the lending market. Further, we show that (1) when lendable supply is binding (non-binding), short-sale supply (demand) is the main predictor of future stock returns, (2) abnormal returns to the short-side of nine well-known market anomalies are attributable solely to “special” stocks, and (3) loan fees significantly reduce the profitability of the short side and several of these anomalies cease to be profitable. Overall our evidence highlights the central role played by the supply of lendable shares in equity price formation and returns prediction.

I document a new stylized fact about how investors trade assets: individuals are more likely to sell the extreme winning and extreme losing positions in their portfolio ("the rank effect"). This effect is not driven by firm-specific information, holding period or the level of returns itself, but is associated with the salience of extreme portfolio positions. The rank effect is exhibited by both retail traders and mutual fund managers. The effect indicates that trades in a given stock depend on how the stock compares to other positions in an investor's portfolio.

This paper characterizes how firms' strategic interaction in product markets affects the industry dynamics of investment and expected returns. In imperfectly competitive industries, a firm's exposure to systematic risk is affected by both its own investment strategy and the investment strategies of its peers, so that the dynamics of its expected returns depend on the intraindustry value spread. In the model and the data, firms' betas and returns correlate more positively in industries with low value spread, low dispersion in operating markups, and low concentration.