Abstract
Several measures of credit-market booms are known to precede downturns in real economic activity. We offer an early indicator for all known measures of credit booms. Our measure is based on intra-family flow shifts towards high-yield bond mutual funds. It predicts indicators such as growth in financial intermediary balance sheets, increase in shares of high-yield bond issuers, and downturns of various measures of credit spreads. It also directly predicts the business cycle by positively predicting GDP growth and negatively predicting unemployment. Our results provide support for the investor demand-based narrative of credit cycles and can be useful for policymakers.
Original language | English (US) |
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Pages (from-to) | 84-108 |
Number of pages | 25 |
Journal | Journal of Financial Economics |
Volume | 139 |
Issue number | 1 |
DOIs | |
State | Published - Jan 2021 |
Externally published | Yes |
Keywords
- Business cycle
- Credit cycle
- High-yield bonds
- Investor demand
- Leading indicator
- Mutual fund flows
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management