The global financial crisis brought to the forefront of academic and policy discussion the question of how best to ensure the stability of the financial system. Researchers at Harvard have led groundbreaking research on bank capital and liquidity management, on the nature of bank runs in the modern financial system, and on the unprecedented growth of the financial sector prior to the crisis. Harvard researchers have also been among the first to develop comprehensive historical data on the incidence and length of financial and banking crises.

Another perspective on financial stability, pioneered by researchers at Harvard, is that financial instability often follows periods when financial institutions, like investors and policy makers, have underestimated risks. These errors in beliefs were an important cause of a financial crisis. If beliefs and expectations can be measured in real time, perhaps policy makers can anticipate financial vulnerability and take measures to prevent crises. Harvard faculty have originated measures of investor sentiment in the equity, credit, and sovereign debt markets.

The Behavioral Finance and Financial Stability Project, founded at the Harvard Business School and launched in July 2016, supports research collaborations between faculty and students across Harvard to understand, predict, and prevent financial instability. The BFFS project occasionally invites globally renowned scholars, policymakers, and financial market practitioners for short-term visits to Harvard Business School to collaborate with Harvard faculty.

BFFS Project researchers currently lead research projects on the following topics:

Can a researcher, a regulator or a market participant, recognize bubbles probabilistically ex ante? Can we measure investor sentiment or risk neglect and understand its influence on security prices? Do credit market conditions reveal bubbles? How are credit market bubbles different from equity market bubbles?

What is the relationship between monetary policy and financial market conditions? Should the Federal Reserve use its balance sheet to pursue a financial stability objective? What role does policy have in curbing investor sentiment?

What are the sources of beliefs and expectations of market participants, including banks? How do they assess future risks in good times? Are there underlying principles that help an outside observer recognize potential errors in beliefs? How do markets learn?

What explains the growth of finance and how is the growth of the financial sector related to financial stability? Do the banking and shadow banking sectors contribute to financial instability? Do novel financial products contribute to instability?

How important are organizational incentives and culture in financial institutions in driving financial stability?

BFFS releases regular working papers from its members.

One of the primary outputs of the BFFS project is our ongoing real-time database of financial stability and investor sentiment measures that we make available to researchers and the broader public here. We also maintain a historical database of banking, stock market, and currency crises with data on over 60 countries back to 1800. Please visit our data page for visualizations and data downloads, organized by topic. You may also be interested in the Harvard University database on government debt and central bank balance sheets, available here.

The BFFS project is supported by an excellent and growing group of post-doctoral fellows, graduate students, and research associates. Harvard faculty affiliated with the project (including members of Harvard Business School, the Kennedy School of Government, the Harvard Economics Department, and the Harvard Law School) are committed to regular meetings to share research findings and data.