Trading with Expert Dealers  R&R in The Journal of Finance

with Vincent Glode. 2025. SSRN Link. 

We jointly model investors' allocation of order flow among over-the-counter dealers and dealers' acquisition of expertise that increases their ability to take advantage of investors across transactions. Investors choose dealers based on their level of expertise and the liquidity they are expected to provide whereas dealers choose their level of expertise based on the number of transactions they expect to intermediate and the cost of acquiring expertise. Our model rationalizes why the most sought-after dealers often are those with the best data, technology, and skills, despite the significant adverse selection concerns triggered by their expertise.

  Why Do Mutual Funds Hold Cash?

with Christoph Scheuch; 2018. SSRN

We examine liquidity risks of mutual funds and the role of liquidity management in  a parsimonious model of active portfolio management with trading costs.  We argue that redemptions which following bad performance pose no dilution risk to remaining investors, and what appears to be liquidity management by mutual funds might be managers collecting rent. Liquidations of illiquid assets to satisfy such redemptions are efficient and do not justify regulatory interventions. Accommodating redemptions with cash only, as managers with performance-sensitive compensation do, exaggerates outflows and destabilizes the fund.

  The Dark Side of Liquid Bonds in Fire Sales. 

with Alexander Muermann and Christoph Scheuch; accepted for publication in The Management Science on November 11, 2025. SSRN

We investigate which bonds investors should sell when they need to raise cash quickly. Our model shows that the intuitive strategy of selling the most liquid bonds can backfire. In over-the-counter markets, liquid bonds trade fastest, but when many investors simultaneously sell the same liquid, widely held bonds while buying capital is scarce, their prices fall the most. Individual investors do not fully internalize how their sales amplify the liquidation losses of others, making the outcome privately optimal but collectively inefficient. We test these predictions using Property & Casualty insurers around major natural catastrophes and find that insurers sell liquid bonds first, only partially avoid crowded bonds, and that liquid bonds experience the largest price declines during fire sales. The overlap in liquid holdings thus emerges as a key source of systemic risk that should receive greater weight in regulation and risk measurement.

Video of the presentation.

Maturity Premium

          with Patrick Weiss and Josef Zechner; 2022 in Journal of Financial Economics. SSRN Link, JFE Link.

  We analyze asset-pricing implications of debt maturity. Firms financed with long-term debt have weaker incentives to deliver after negative shocks and thus exhibit high leverage during extended downturns. The resulting increase in beta is a risk for which shareholders require compensation. As a result long-term financed firms have higher expected returns than short-term financed firms, controlling for the average systematic risk exposure. We demonstrate this in a model and document empirically a 0.21% monthly premium for buying long-maturity financed firms and selling short-maturity financed firms.