This chapter studies how incomplete information helps accommodate frictions in coordination, leading to novel insights on the joint determination of expectations and macroeconomic outcomes. We review and synthesize recent work on global games, beauty contests, and their applications. We...

Using an extensive data set on corporate bond defaults in the US from 1866 to 2010, we study the macroeconomic effects of bond market crises and contrast them with those resulting from banking crises. During the past 150 years, the US has experienced many severe corporate default crises in which...

The failure and near-collapse of some of the largest dealer banks on Wall Street in 2008 highlighted the marked vulnerability of the industry. Dealer banks are financial intermediaries that make markets for many securities and derivatives. Like standard banks, dealer banks may derive the funding...

This article presents a modification of Merton’s (1976) ruin option pricing model to estimate the implied probability of default from stock and option market prices. To test the model, we analyze all global financial firms with traded options in the US and focus on the subprime mortgage crisis...

Why do some banks fail in financial crises while others survive? This article answers this question by analysing the effect of the Dutch financial crisis of the 1920s on 142 banks, of which 33 failed. We find that choices of balance sheet composition and product market strategy made in the...

In this paper, we compare the equity returns of dividend-paying and non-dividend paying firms. We find no unconditional return difference even though non-dividend paying firms have many characteristics that suggest high risk. Equivalently, because non-dividend paying firms have high...

As a follow-up study to the author’s previous paper on “Nonperforming Loans in CESEE – What Do They Comprise?”, the present contribution focuses on the definitions of nonperforming loans (NPLs) in a number of Western European nations – Austria, Finland, France, Germany, Ireland, Italy,...

This study builds on two previous studies the author contributed to Focus on European Economic Integration (FEEI), namely “Nonperforming Loans in CESEE – What Do They Comprise?” (Barisitz, 2011) and “Nonperforming Loans in Western Europe – A Selective Comparison of National...

The importance of estimation of a firm's probability of default increased significantly during the economic and financial crisis for financial institutions, which can be explained by the fact that the share of nonperforming loans increased in this period. The probability of default can be...