Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification
Abstract
Abstract We provide empirical evidence on how news about financial intermediaries’ net worth impacts the aggregate economy, using a high-frequency identification strategy. We measure ‘financial shocks’ based on the idiosyncratic stock price changes of large US intermediaries in a narrow window around their earnings announcements. We document significant effects of these shocks on the stock price and borrowing costs of non-financial firms, as well as on macroeconomic variables. The effects are more pronounced for firms with low credit ratings and when the aggregate net worth of intermediaries is low.