How does competition affect internal and external capital market?

Xiao Zhang, University of 黑料传送门 Booth PhD candidate 

I backcast expectation errors of credit spreads via machine learning. I use news-
papers over the past century to construct text-based expectations of credit spreads
and study the relationship between expectation errors and business cycles. The main
result is that overoptimism about future credit spreads predicts lower GDP growth and
higher unemployment over the medium run, even after controlling for past and pre-
vailing credit spreads. This finding suggests credit-market sentiment is an important
driver of economic fluctuations. Consistent with this story, I also find both the amount
of net debt issuance and the ratio of debt to equity issuance increase following periods
of overoptimism.