Tyler Muir: The financial crisis is fueling asset price declines, why the power of recovery differs from economic activity, and the rise of post-crisis populism

Key Takeaways

• Financial crises have a far greater impact on stock markets than a typical recession.
• Stock prices fell significantly during the financial crisis because of the risk premium channel.
• Stock markets generally recover faster than post-crisis economic activity.
• Financial crises have lasting political and economic consequences beyond market stability.
• Populism and nationalism often emerge following financial crises.
• Financial intermediaries play an important role in asset financing, surpassing domestic influence.
• Many families do not have the knowledge to appreciate complex financial instruments.
• The Federal Reserve’s bond market activities significantly affect asset prices and yields.
• Passive investing creates a disconnect in determining market prices.
• Reducing the amount redistributes risk rather than eliminating it.
• The Federal Reserve’s actions in the bond markets directly affect asset prices.
• Financial crises can lead to long-term macroeconomic consequences.

Guest introduction

Tyler Muir is Professor of Finance at the UCLA Anderson School of Management and holds the Donnalisa ’86 and Bill Barnum Endowed Chair in Management. He was awarded the 2025 Fischer Black Prize by the American Finance Association, which honors a senior financial scholar under the age of 40 with rigorous research that has a significant impact on the practice of finance. His research focuses on asset prices, financial intermediaries, and financial crises, with recent work examining how quantitative easing has changed the bond market and the role of financial sector health in asset price volatility.

Financial crises and their unique impact on stock markets

• Financial crises have different effects on stock markets compared to a normal recession.

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• Asset prices are more affected during financial crises than in normal economic downturns.

• The main argument in the paper… is actually about their effects on stock markets on stock prices.

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• Understanding these differences is important in analyzing market behavior during crises.
• Financial problems are increasing the decline in asset prices more than expected.

• In financial terms, it looks like you’re getting this extra big boost.

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• The risk premium channel separates disasters from normal declines.
• This understanding is important to understand the behavior of asset prices during financial crises.

Financial repayment problems

• Stock markets tend to recover faster than the broader economy after a crisis.

• The decline in economic activity… is often far away.

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• This analysis highlights different levels of market and economic stability.
• Understanding these changes is essential to analyzing the post-crisis economy.
• Financial crises create lasting political and economic consequences.

• While the financial markets are recovering… it creates all these financial meltdowns.

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• These effects go beyond immediate financial market recovery.
• Effective policy responses are needed to address these long-term impacts.

Political change follows financial crisis

• Financial crises are linked to the rise of populism and nationalism.

• There is this pattern of rising nationalist populism that is growing and … it continues.

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• This connection provides a framework for understanding post-crisis political dynamics.
• Historical patterns of political behavior often follow financial turmoil.
• Understanding these patterns is essential to anticipating political change.
• The emergence of populism can have important macroeconomic consequences.
• Financial crises often lead to lasting political and economic changes.

The role of financial intermediaries in asset pricing

• Financial intermediaries have a greater influence on asset prices than households.

• What they do is probably more important than what families do.

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• This challenges the conventional view of households as the primary agents of asset prices.
• Financial institutions are active players in determining rates.
• Understanding this influence is important in analyzing market dynamics.
• Families often lack the knowledge to appreciate complex financial instruments.

• Many families do not really know how to value a mortgage-backed security.

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• This gap in financial literacy affects how asset prices are perceived and influenced.

The impact of the Federal Reserve on bond markets

• The Federal Reserve’s entry into the bond markets has a significant impact on asset prices.

• It will affect bond yields or commodity prices generally directly.

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• This highlights the important role of the Federal Reserve in financial markets.
• Deleveraging does not eliminate risk but redistributes it across balance sheets.

• You haven’t really done anything but move around the balance sheets.

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• Understanding this redistribution is important for economic policy discussions.
• The actions of the Federal Reserve have direct effects on asset prices and yields.

The rise of passive investing and market forces

• Passive investing leads to a break in market pricing.

• Families… do it arbitrarily so that the prices are decided by someone else.

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• This trend has important implications for market efficiency and price discovery.
• Understanding the impact of passive strategies is important in analyzing market dynamics.
• Fixed income investing changes the way prices are determined in financial markets.
• This disconnect affects the overall efficiency of financial markets.
• The growth of passive investing is an important trend in modern finance.

Quantitative mitigation and distribution of risk

• Reducing the amount redistributes risk rather than eliminating it.

• The taxpayer… you’re still going to bear that risk you’re not really done yet.

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• This insight clears up a common misconception about quantitative simplicity.
• Understanding this redistribution is important in discussions of economic policy.
• The Federal Reserve’s actions in the bond markets directly affect asset prices.
• Devaluation has important implications for the spread of risk in the economy.
• This redistribution affects the way risk is perceived and managed in financial markets.