Market sentiment, financial fragility, and economic activity: The role of corporate securities issuance

Arbeitspapier

Using new quarterly U.S. data for the past 120 years, I show that sudden reversals in equity and credit market sentiment approximated by several measures of corporate securities issuance are highly predictive of banking crises and recessions. Deviations in equity issuance from historical averages also help to explain economic activity over the business cycle. Crises and recessions often occur independently of domestic leverage, making the credit-to-GDP gap a deficient early-warning indicator historically. The fact that equity issuance reversals predict banking crises without elevated private credit levels, suggests that changes in investor sentiment can trigger financial crises even in the absence of underlying banking fragility.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 2021/6

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Crises ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets‡ ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: Pre-1913 ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-
• Subject: Corporate securities issuance ; market sentiment ; nancial fragility ; banking crises ; recessions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dieckelmann, Daniel
• Event: Veröffentlichung
• (who): Freie Universität Berlin, School of Business & Economics
• (where): Berlin
• (when): 2021

Further information

• DOI: doi:10.17169/refubium-29416
• Handle: http://hdl.handle.net/10419/230674
• URN: urn:nbn:de:kobv:188-refubium-29672-3
• Last update: 10.03.2025, 11:44 AM CET