In this paper we present a theory of the financing of investment in a modern capitalist economy, following the approach developed by Hyman P. Minsky. We argue that the current financial crisis that began with the collapse of the subprime mortgage market in the United States in 2007 provides a...

In this paper we present a theory of the financing of investment in a modern capitalist economy, following the approach developed by Hyman P. Minsky. We argue that the current financial crisis that began with the collapse of the subprime mortgage market in the United States in 2007 provides a...

Based on the Stein (1996) model of financing and capital expenditures when market beliefs may be affected by sentiment, this paper directly estimates the effect of sentiment on hurdle rates. The hurdle rates are estimated for periods of high and low sentiment, making use of cross-sectional...

I demonstrate that much of the time series variation in the credit spread on high yield bonds is attributable to changes in the “credit risk premium” rather than changes in expected default losses. The credit risk premium is the expected excess return investors earn from bearing default risk...

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

The sub prime crisis in US is the result of excessive amounts of loans made to people who could not afford them and excessive amounts of money thrown into the mortgage arena by investors who were very eager for high return. The crisis represents the other side of a phase when a low rate of...

I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and...

We use a production-based asset pricing model to investigate whether financial market imperfections are quantitatively important for pricing the cross-section of returns. Specifically, we use GMM to explore the stochastic Euler equation restrictions imposed on asset returns by optimal investment...

Subprime crisis has ended history of many banks in the USA. As of now 22 banks have been closed because of Subprime crisis. It started with the Lehman Brothers, a 138 year old company filed bankrupt followed by Washington Mutual Funds. Like this 20 other small and medium size banks collapsed....

In this paper we present a theory of the financing of investment in a modern capitalist economy, following the approach developed by Hyman P. Minsky. We argue that the current financial crisis that began with the collapse of the subprime mortgage market in the United States in 2007 provides a...