Thomas Eisenbach, David Lucca, and Karen Shen
Stocks are usually offered in initial public offerings (IPOs) at a discount,
leading to large first-day IPO returns. When there is a risk of a negative initial
return, underwriters are known to actively support the aftermarket price of a
stock through buying activities. In this post, we look at the trading book for
Facebook stock on May 18, 2012, the day of its highly anticipated IPO. Using
what we call a “large integer–price bid” identification assumption to indirectly infer which investors are bidding, we find evidence of significant trading by underwriters seeking to stabilize the stock’s price. This evidence suggests that underwriters incurred significant costs as a result of these activities.
Continue reading "In a Relationship: Evidence of Underwriters’ Efforts to Stabilize the Share Price in the Facebook IPO" »
The high valuations achieved by recent social-media- and Internet-related initial public offerings (IPOs) and their disappointing aftermarket performance have rekindled the specter of the dot-com boom and bust of the late 1990s. This post extends the analysis of my 2004 Current Issues
article (with Gijoon Hong) that documents a gradual but significant deterioration in the quality of issuing companies since the 1980s, a trend that reached a low point with the bursting
of the Internet bubble in 2000. Despite considerable investor interest in
recent web startups, the volume of IPO proceeds has remained weak since the
2000 Internet collapse. An important lesson of the boom-and-bust episode is
that a viable and well-functioning IPO market must be based on companies with
sound fundamentals and business plans. Although there are no signs of another
tech bubble, my post shows that IPO companies have remained, on average, weak
financially over the 2001-11 period.
Continue reading "Weakness in the U.S. IPO Market" »
Marco Cipriani, Michael Holscher, Antoine
Martin, and Patrick McCabe
In a June post
we explained why the design of money market funds (MMFs) makes them prone to
runs and thereby contributes to financial instability. Today, we outline a proposal
for strengthening MMFs that we’ve put forward in a recent New York Fed staff
. The proposal aims to reduce, and possibly
eliminate, the incentive for investors to run from a troubled fund, while
retaining the defining features of money market funds that make them popular
financial products. U.S. Treasury Secretary Timothy Geithner, in a recent letter
to the Financial Stability Oversight Council, requested that it consider an idea similar to what we described in our staff report as one of several potential options for reforming MMFs to address their structural vulnerabilities.
Continue reading "The Minimum Balance at Risk: A Proposal to Stabilize Money Market Funds" »
is a website for people obsessed with color and design. In 2007, a contributing blogger was inspired to write about how the color palette of U.S. money was undergoing a momentous change. He explains in “The New Colors of U.S. Money
” the redesign of the $5, $10, $20, and $50 bills, offering images and careful descriptions of the coloring. He briefly observes why the currency is “safer, smarter, and more secure.”
Continue reading "Historical Echoes: It’s Not Easy Being Green" »
Dafna Avraham, Tara Sullivan, and James Vickery
The New York Fed has recently published the first edition of a new quarterly report tracking the aggregate financial condition of consolidated U.S. banking organizations. In this post, we describe the methodology used to construct the statistics in the report as well as present and briefly discuss some of the findings.
Continue reading "Tracking the U.S. Banking Industry" »
It’s a book
! It’s an HBO film
! It’s a T-shirt
! It’s the subject of one of the two top quotes of 2009
! The popular phrase “too big to fail” is associated with both the 2007 financial crisis and work on new legislation designed to prevent the recurrence of such a crisis. Although this phrase has become ubiquitous since 2007, it has been used to describe banks only since the mid-1980s. Actually, the phrase appeared even earlier, in the mid-1970s, in discussions of Lockheed Corporation.
Continue reading "Historical Echoes: “Too Big to Fail” Is One Big Phrase" »
Jennie Bai, Christian Cabanilla, and Menno Middeldorp
During the recent financial crisis, the absence of an orderly resolution regime forced governments of several countries to provide extraordinary support to a number of systemically important financial institutions (SIFIs) that were considered “too-big-to-fail.” Since then, new laws such as the Dodd-Frank Act have established a framework to resolve SIFIs without the need for government “bail-outs.” These types of laws have important implications for senior bondholders of SIFIs, as the use of the new regimes would likely expose creditors to losses. Given this change, this post investigates whether markets are adjusting their perceptions of the risk associated with global SIFIs. We find that in response to shifting regulatory regimes, investors are beginning to price in a higher risk of default on senior bonds issued by the institutions.
Continue reading "The New Bank Resolution Regimes and “Too-Big-to-Fail”" »
Richard Crump and David Lucca
Many economic time series display periodic and predictable patterns within each calendar year, generally referred to as seasonal effects. For example, retail sales tend to be higher in December than in other months. These patterns are well-known to economists, who apply statistical filters to remove seasonal effects so that the resulting series are more easily comparable across months. Because policy decisions are based on seasonally adjusted series, we wouldn’t expect the decisions to exhibit any seasonal behavior. Yet, in this post we find that the Federal Reserve has been much more likely to lower interest rates in the first month of each quarter over the past twenty-five years. While some of this seasonality is a result of meeting scheduling, a large seasonal component remains unexplained.
Continue reading "Is U.S. Monetary Policy Seasonal?" »