Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284317 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 967
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
This paper explores the impact of risky asset holdings by U.S. nonfinancial firms. From the early 1990s to 2017, the share of risky securities surged from 28% to over 40% of firms' financial assets. Using a business-cycle heterogeneous firms model, I show that declining real interest rates since the 1980s increased the risk premium, driving the increase in risky asset holdings. The model predicts that firms with higher exposure to risky assets experience an investment decline up to 50% more pronounced during large shocks, empirically validated by analyzing the Great Financial Crisis.
Subjects: 
Risky assets
corporate bonds
firm heterogeneity
firm dynamics
business-cycle
JEL: 
E22
E44
G11
Document Type: 
Working Paper

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