Research

Publications

Stock Comovement and Financial Flexibility,

with Anil Kumar, Stefano Sacchetto, and Carles Vergara-Alert [SSRN]

Journal of Financial and Quantitative Analysis, 2024, 59(3), 1141-1184

Working Papers -Scheduled Presentations Included; *=Presentation by Coauthor

Presentations: EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Paris; EFA 2023 Poster Session, Amsterdam; EARIE 2022, Vienna; FMA European Conference 2022, Lyon; BFWG 15th Annual Conference (2022), Queen Mary University of London; FMCG 2022 (Virtual), Monash University; University of Gothenburg (2023); University of Bristol (2023); Erasmus University Rotterdam (2023); University of Guelph (2023); NHH Norwegian School of Economics (2023); NEOMA Business School (2023); HEC Lausanne Brownbag (2022); IESE Business School Brownbag (2022); Luiss Guido Carli University Brownbag (2022)

Abstract: Households exhibit "return chasing" behavior, so through asset reallocation channel, good stock market performance induces contractions in deposit supply. Using stock market performance as a shock to deposit supply, we trace banks' deposit demand and identify the relationship between bank market power and the slope of deposit demand. Exploiting a fixed effects identification strategy by comparing branches with the same parent bank located in different cities within the same county, we find that bank market power makes deposit demand curve steeper. Steeper deposit demand curve attenuates the spillover effects on the local deposit market of stock market fluctuations. Counties with more bank market power also experience less contractions in small business lending when stock market performance is good. Overall, our results suggest that bank market power is important in insulating and stabilizing local deposit and lending market from the spillover effects of the stock market.

Bonding With Risk: Corporate Investment and Savings in Risky Financial Assets,

with Stefano Sacchetto

Revise & Resubmit, Journal of Financial Economics

Presentations: FMA European Conference 2024, Turin; Workshop on Horizon Risks and Corporate Policies (2022), Collegio Carlo Alberto; EFMA 2022, Rome*; MFA 2021 (Virtual), Chicago*; AFA 2021 Poster Session (Virtual), Chicago; CAFM 2020 Doctoral Student Workshop (Virtual), Seoul; FMA 2020 (Virtual), New York; EFA 2020 (Virtual), Helsinki; Luiss Guido Carli University (2021, 2020); EM-Lyon Business School (2020); IESE Business School Brownbag (2019)

Abstract: We study the rationale behind firms’ investment in risky financial assets by formulating a dynamic model in which firms allocate their precautionary savings to both safe and risky securities. In equilibrium, risky financial asset holdings are positively related to the sensitivity of a firm's financing deficit to the risky asset returns---the "financing deficit beta." Using a comprehensive sample of US corporate financial asset holdings, we find evidence of a positive correlation between risky financial asset holdings and financing deficit betas that capture firms’ incentives to hedge medium-to-long term interest-rate risk. Precautionary motives are stronger in small and R&D-intensive firms.