The Yale Undergraduate Research Journal
Article Title
Abstract
The run on the sale and repurchase market (“run on repo”) was at the nexus of the Financial Crisis of 2007- 2009. Up until now, the economics literature has not studied the effect of sale and repurchase agreement (“repo”) haircuts on bank stock returns using an empirical economic approach. I utilize private repo haircut data from 2007Q1-2009Q1 supplemented with bank stock returns, total reserve balances, and market rate of returns and risk-free rate of returns data to trace the path of crisis from repurchase agreements into a market that had no connection to housing. In linear model regressions, I find that repo haircuts on BBB+/A Corporates, AA-AAA Corporates, A-AAA ABS-Auto/CC/SL, AA-AAA ABS-RMBS/CMBS, AA-AAA CLO, and Unpriced CLO/CDO are negatively associated with bank stock returns during the Financial Crisis. The results suggest that there is an underlying force driving the co-movement of bank stock returns with repo haircuts.
Recommended Citation
Battaglia, Madison
(2021)
"The Run on Repo and Bank Stock Returns,"
The Yale Undergraduate Research Journal: Vol. 2:
Iss.
1, Article 9.
Available at:
https://elischolar.library.yale.edu/yurj/vol2/iss1/9