Working Papers
Post-Crisis Regulations, Trading Delays, and Increasing Corporate Bond Liquidity Premium (Job Market Paper)
Best Paper Award in Market Microstructure, Semifinalist, FMA
2022 EFA Barcelona | FSB NBFI Workshop | 2022 FIRS | 2022 Finance Down Under | 2021 Colorado Finance Summit Job Market Session | 2021 AFBC Ph.D. Forum | 2021 FMA | 2021 ASSA/IBEFA | 2021 SGF | 2021 ERIC Doctoral Consortium | 2020 UT Austin PhD Student Symposium | 2020 LBS Transatlantic Doctoral Conference (conference cancelled)
ABSTRACT: I examine corporate bond market liquidity from 2004 to 2019 through the lens of the liquidity premium. I document that while commonly-used transaction cost measures such as the bid-ask spread remain flat, the corporate bond liquidity premium has actually increased since the financial crisis. I argue that as post-crisis regulations such as Basel II.5 have reduced dealer’s provision of immediacy, investors now experience much longer trading delays, and so require a higher liquidity premium than before the crisis. Using a structural over-the-counter model, I estimate the unobserved trading delays implied by the size of the liquidity premium. I show bonds that used to be sold within one day now take weeks to trade.
2023 AFA | 8th HK Joint Finance Research Workshop | 2022 Young Scholar Finance Consortium | 2022 Eastern Finance | 2021 AFBC | 2020 AFA Poster
ABSTRACT: We uncover informed trading on the days before federal open market committee (FOMC) announcements. We show that this informed trading can explain the pre-FOMC announcement drift in the stock market, by contributing to the resolution of uncertainty before announcement. We document three distinct novel evidences supporting this. First, we show that U.S. corporate bond yield changes in the blackout period before FOMC announcements can predict monetary policy surprises, with about 30% R-squared. Second, and consistent with informed trading, we show that corporate bond customers tend to buy before upcoming expansionary FOMC surprises and sell before contractionary FOMC surprises. Finally, we uncover pre-FOMC information flow from corporate bond to the stock market by showing that (a) corporate bond yield changes Granger-cause stock market pre-FOMC movements, and (b) lagged corporate bond customer-dealer trade imbalances can explain pre-FOMC stock market returns, and the pre-announcement drift.
ECB Monetary Policy Transmission During Normal and Negative Interest Rate Periods with Falk Bräuning
2017 IBEFA Summer
ABSTRACT: We analyze monetary policy transmission in the euro area from 2009--2016, including changes during the negative interest rate policy (NIRP) period as of June 2014. We identify three dimensions of ECB monetary policy related to surprise changes in (i) the target rate, (ii) the expected future path of the target rate (path factor), and (iii) longer-term interest rates (term factor). We find that surprise shocks about the target rate and the future path of the target rate have strong effects on interbank lending rates and government bond yields. Moreover, expansionary monetary policy surprises related to the term factor decrease government bond yields across all maturities and have strongest effects on medium- and long-term maturities. Prices of riskier assets, such as longer-term assets, sovereign bonds from crisis countries, or equities, increase significantly more in response to expansionary monetary policy shocks during the NIRP period. Moreover, during the NIRP period, expansionary target rate shocks further decrease loan interest rates and strongly increase the origination of new bank loans to businesses and households, particularly for loans with longer maturities.