Replication data for: Optimal Regulation of Financial Intermediaries

Name	File Type	Size	Last Modified
FF_factors_monthly.dta	application/octet-stream	25.7 KB	10/12/2019 02:43:AM
Suff_Stat_Data.csv	text/plain	4.3 KB	10/12/2019 02:43:AM
Suff_Statistic_Analysis.nb	text/plain	99.9 KB	10/12/2019 02:43:AM
compustat_sic.dta	application/octet-stream	110.2 MB	10/12/2019 02:43:AM
factor_idvol_q.do	text/plain	2.4 KB	10/12/2019 02:44:AM
for_mkt_eq.dta	application/octet-stream	145.8 MB	10/12/2019 02:43:AM
leverage_hkm.do	text/plain	706 bytes	10/12/2019 02:44:AM

Project Description

Summary: I characterize the optimal financial regulation policy in an economy where financial intermediaries trade capital assets on behalf of households, but must retain an equity stake to align incentives. Financial regulation is necessary because intermediaries cannot be excluded from privately trading in capital markets. They don't internalize that high asset prices force everyone to bear more risk. The socially optimal allocation can be implemented with a tax on asset holdings. I derive a sufficient statistic for the externality in terms of observable variables, valid for heterogeneous intermediaries and asset classes, and arbitrary aggregate shocks. I use market data on leverage and volatility of intermediaries' equity to measure the externality, which co-moves with the business cycle.

Scope of Project

JEL Classification:
      D82 Asymmetric and Private Information; Mechanism Design
      G01 Financial Crises
      G12 Asset Pricing; Trading Volume; Bond Interest Rates
      G20 Financial Institutions and Services: General
      G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
      H25 Business Taxes and Subsidies including sales and value-added (VAT)

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Published Versions

V1 [2019-10-12]

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DDI 2.5

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