This paper separates short- and long-run dynamics of bank leverage by use of cointegration analysis. With respect to the long-run, if banks' leverage ratio or related liability shares are constant over time, they form a cointegrating relationship. Thus, cointegration tests indicate whether banks...

This paper presents a continuous-time bank capital structure model in which the bank's assets are subject to both diffusion and tail risk. The latter causes uninsured deposits to be risky, as the bank's assets can jump below the threshold at which it is optimal for depositors to run. The model...

We use a classic Merton credit risk framework to argue that Islamic Banking Institutions (IBIs) face less incentive to take on risks than Conventional Banking Institutions (CBI). IBIs have less incentive for risk shifting both in and outside of distress situations. We test and confirm this...

Mutual fund risk-taking via active portfolio rebalancing varies both in the crosssection and over time. In this paper, I show that the same is true for funds' off- balance sheet risk-taking, even after controlling for on-balance sheet activities. For this purpose, I propose a novel measure of...

Mutual fund risk-taking via active portfolio rebalancing varies both in the cross-section and over time. In this paper, I show that the same is true for funds' off- balance sheet risk-taking, even after controlling for on-balance sheet activities. For this purpose, I propose a novel measure of...

Nonbank mortgage companies (NMCs) use high levels of short-term leverage, leading to concerns about their individual fragility and systemic risk. We find that NMCs also hold very risky assets, with revenue growth ranging from -30% to +100% at the 10th-90th percentile. Surprisingly, we also...