Lei Xie
AQR Capital
2 Greenwich Plaza
Greenwich, CT 06830
E-Mail: 
Institutional Affiliation: AQR Capital
NBER Working Papers and Publications
April 2014 | The Flight from Maturity
with Gary B. Gorton, Andrew Metrick: w20027
Why did the failure of Lehman Brothers make the financial crisis dramatically worse? The financial crisis was a process of a build-up of risk during the crisis prior to the Lehman failure. Market participants tried to preserve an option or exit by shortening maturities - the "flight from maturity". With increasingly short maturities, lenders created the possibility of fast exit. The failure of Lehman Brothers was the tipping point of this build-up of systemic fragility. We produce a chronology of the crisis which formalizes the dynamics of the crisis. A crisis is a dynamic process in which "tail risk" is endogenous. |
|