Dynamic Debt Runs: Evidence from a Structural Estimation
Speaker
Abstract
| We use data from the 2007 asset-backed commercial paper (ABCP) crisis to measure the fragility of long-term investment .nanced with dispersedly held, short-term debt with staggered maturities. Almost half of ABCP conduits experienced runs on their debt by the end of 2007. The level and volatility of yields increased leading up to runs. To match these data, we propose a dynamic model that uniquely determines debt prices and run probabilities in equilibrium. Our model features dilution risk in addition to rollover risk: lenders demand high yields to compensate them for being diluted by future lenders, which makes runs more likely. The likelihood of a runs increases with the underlying asset.s volatility and liquidation costs but decreases with the asset.s growth rate, the average debt maturity, and the strength of the conduit.s credit guarantee. |
| Contact information: |
| Elvira Sojli |
|
This event is an Erasmus Finance Seminar. The Erasmus Finance Seminar series brings prominent researchers in Finance from all over the world to Rotterdam. |
