7  In our recent research paper, the proxy for depth of the financial system is the ratio of private credit to gross domestic product. 8  Clearly, determining the precise timing of crises is difficult, both in terms of identifying the beginning and the end of a crisis.
The heightened concern about these risks is indicated by the extremely high equity risk premiums, which reflect, among other factors, the risk that investors who suffered a loss in income may also be forced to sell their stocks when valuations are low. Traditional rules of income and asset diversification appear to offer scarcer protection than generally advertised.