Publications

[1] Mortgage risk and the yield curve with Aytek Malkhozov, Philippe Mueller, and Andrea Vedolin (ssrn version)

Review of Financial Studies, 2016, 29, 1220-1253

Risk in mortgage-backed securities (MBS) drives the level and volatility of interest rates: (i) MBS duration positively predicts nominal and real excess bond returns, especially for longer maturities, (ii) the predictive power of MBS duration is transitory in nature, (iii) MBS convexity increases the volatility of all yields, and this effect has a hump-shaped term structure.

[2] Central bank communication and the yield curve with Matteo Leombroni, Andrea Vedolin, and Paul Whelan (ssrn version)

Journal of Financial Economics, 2021, 141, 860-880

ECB communication affects mid- and long-term sovereign yields through the risk premium channel. Press conference communication shocks raised credit risk and the yield spread between peripheral and core countries between 2009-2015. ECB President speeches during the same period decreased the spread.

• Earlier version featured on Vox.

• Featured at The ECB and Its Watchers XXI

• ECB Governing Council Meeting communication shocks data, updated until December 2020, available here.

[3] Demand-and-supply imbalance risk and long-term swap spreads with Samuel G. Hanson and Aytek Malkhozov (ssrn version)

Journal of Financial Economics, 2024, 154, 103814

Swap spreads are determined by end users’ demand for and constrained intermediaries’ supply of long-term interest rate swaps. Swap spreads reflect compensation both for using scarce intermediary capital and for bearing convergence risk— i.e., the risk spreads will widen due to a future demand-and-supply imbalance. Empirically, we identify these separate demand and supply factors, and assess their respective contributions to the level of swap spreads and the returns on swap spread trades.

Working papers

[4] Multiple equilibria in noisy rational expectations economies with Dömötör Pálvölgyi and Liyan Yang

Revise and resubmit at Econometrica

Standard noisy REE models, i.e., Grossman and Stiglitz (1980) and Hellwig (1980), have previously unnoticed equilibria. These feature (i) jumps & crashes and price drift; (ii) higher volatility, uncertainty, and illiquidity in recessions vs booms; (iii) higher aggregate welfare, and (iv) can be arbitrarily close to being fully revealing.

[5] Exchange traded liquidity (coming soon) with Nina Boyarchenko, Lars C. Larsen, and Paul Whelan

[6] Short-sale constraints and real investments

Security prices contain less information under short-sale constraints, but they can be more informative to some agents who have additional private information. This, in turn, can lead to higher allocative efficiency in real investments.

[7] On equilibrium uniqueness in multi-asset noisy rational expectations economies with Dömötör Pálvölgyi

We show that in several multi-asset, asymmetric information noisy REE models the linear equilibrium that can be found with the "conjecture and verify" method is the unique equilibrium in which the price function is continuous. (A generalization of some results from Multiple Equilibria in Noisy Rational Expectations Economies.)

[8] Funding illiquidity, funding risk, and global stock returns with Aytek Malkhozov, Philippe Mueller, and Andrea Vedolin

We construct daily global and local (country-specific) illiquidity proxies from yield curves, and we show both theoretically and in the data that (i) higher global illiquidity implies a flatter SML, (ii) stocks with higher local illiquidity and lower beta earn higher alphas and Sharpe ratios, (iii) illiquidity improves the performance of BAB-like strategies, (iv) global illiquidity commands a negative risk premium. (Previously titled "International Illiquidity")

[9] Financially constrained strategic arbitrage (in progress) with Aytek Malkhozov and Wei Zhou

Marking-to-market endogenously creates cooperative/predatory trading among arbitrageurs with price impact. This predatory threat can either (i) lead to slow initial investment and slow price convergence, or (ii) arbitrageurs bet on early/late convergence, leading to two groups with different mean, variance and skewness of returns, and predation in equilibrium.