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Downside belief disagreements and financial instability: Evidence from risk factor disclosures in U.S. financial institutions’ 10-K filings

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  • Li, Rui
  • Li, Jianping
  • Zhu, Xiaoqian

Abstract

At what point does the shift from a stable to an unstable financial system occur? This study develops the first measurement of downside belief disagreements by utilizing the qualitative disclosures of risk factors in U.S. financial institutions’ 10-K filings. We show that the transition into financial instability occurs with a large increase in downside belief disagreements. Notably, it is not only downside belief disagreements but also its interaction with rapid credit expansion that matters for financial stability risks. We further conduct mechanism tests and find that downside belief disagreements harm financial stability by imposing credit constraints and price reductions.

Suggested Citation

  • Li, Rui & Li, Jianping & Zhu, Xiaoqian, 2025. "Downside belief disagreements and financial instability: Evidence from risk factor disclosures in U.S. financial institutions’ 10-K filings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:intfin:v:99:y:2025:i:c:s1042443125000083
    DOI: 10.1016/j.intfin.2025.102118
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    More about this item

    Keywords

    Belief disagreements; Financial stability; Risk disclosures; Credit constraints;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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