The Marginal Value of Public Pension Wealth: Evidence from Border House Prices, Journal of Financial Economics, forthcoming.
(with Darren Aiello, Asaf Bernstein, Mahyar Kargar, and Ryan Lewis)
We study how state pension windfalls affect property prices near state borders, where theory suggests real estate reflects the value of additional public resources. Windfalls, representing a source of state revenue about half the size of total taxes, provide economically significant and plausibly exogenous variation in fiscal conditions. We find that each dollar of pension asset returns increases border house prices by approximately two dollars, suggesting that governments allocate additional funds towards high-value projects or tax abatement rather than wasting incremental resources. Evidence of larger effects in financially constrained municipalities highlights how fiscal resources amplify welfare effects of economic shocks.
Duration-Based Valuation of Corporate Bonds, Review of Financial Studies (2025), 38(1), 158-191.
(with Jules van Binsbergen and Yoshio Nozawa)
Award: Jacobs Levy Center Prize (Outstanding Paper)
We decompose corporate bond and equity index returns into duration-matched government bond returns and the excess returns over this duration-matched counterfactual, which we term duration-adjusted returns. Our decomposition leads to markedly different return patterns and asset pricing implications compared to previously used excess return definitions (i.e., returns in excess of Treasury bills). In particular, we find that investment-grade bonds earn a small credit risk premium, comparable in magnitude to the convenience yield, and that duration adjustment resolves the CAPM's failure to price corporate bonds. These findings highlight the importance of adjusting for non-stationary interest rate environments in asset pricing tests.
Sea Level Rise Exposure and Municipal Bond Yields, Review of Financial Studies (2023), 36(11), 4588-4635.
(with Paul Goldsmith-Pinkham, Matt Gustafson, and Ryan Lewis)
Award: Jacobs Levy Center Prize (Outstanding Paper)
Media: Financial Times, Knowledge@Wharton
Municipal bond markets begin pricing sea level rise (SLR) exposure risk in 2013, coinciding with upward revisions to worst-case SLR projections and accompanying uncertainty around these projections. The effect is larger for long-maturity bonds and is not solely driven by near-term flood risk. We use a structural model of credit risk to quantify the implied economic impact and distinguish the effects of underlying asset values and uncertainty. The SLR exposure premium exhibits a different trend from house prices and is unaffected by house price controls. Taken together, our results highlight the importance of climate uncertainty in driving municipal bond prices.
CLO Performance, Journal of Finance (2023), 78(3), 1235-1278.
(with Larry Cordell and Michael Roberts)
Awards: Q-Group Jack Treynor Prize, Jacobs Levy Center Prize (Best Paper), Marshall Blume Prize (Honorable Mention)
Media: Institutional Investor, Knowledge@Wharton
We study the performance of collateralized loan obligations (CLOs) to understand the market imperfections giving rise to these vehicles and their corresponding economic costs. CLO equity tranches earn positive abnormal returns from the risk-adjusted price differential between leveraged loans and CLO debt tranches. Debt tranches offer higher returns than similarly rated corporate bonds, making them attractive to banks and insurers that face risk-based capital requirements. Temporal variation in equity performance highlights the resilience of CLOs to market volatility due to their closed-end structure, long-term funding, and embedded options to reinvest principal proceeds.
Proactive Capital Structure Adjustments: Evidence from Corporate Filings, Journal of Financial and Quantitative Analysis (2022), 57(1), 31-66.
(with Arthur Korteweg and Ilya Strebulaev)
We use new hand-collected data from corporate filings to study the drivers of corporate capital structure adjustment. Classifying firms by their adjustment frequencies, we reveal previously unknown patterns in their reasons for financing and financial instruments used. Some are consistent with existing theory, while others are understudied. Many leverage changes are outside of the firm's control (e.g., executive option exercise) or incur negligible adjustment costs (e.g., credit line usage). This implies a lower frequency of proactive leverage adjustments than indicated by prior research using accounting data, suggesting that costs of adjustment are higher, or the benefits lower, than previously thought.
The Economics of PIPEs, Journal of Financial Intermediation (2021), 45, 100832.
(with Jongha Lim and Michael Weisbach)
Media: Financial Times
Private investments in public equities (PIPEs) are an important source of finance for public corporations. PIPE investor returns decline with holding periods, while time to exit depends on the issue’s registration status and underlying liquidity. We estimate PIPE investor returns adjusting for these factors. Our analysis, which is the first to estimate returns to investors rather than issuers, indicates that the average PIPE investor holds the stock for 384 days and earns an abnormal return of 19.7%. More constrained firms tend to issue PIPEs to hedge funds and private equity funds in offerings that have higher expected returns and higher volatility. PIPE investors’ abnormal returns appear to reflect compensation for providing capital to financially constrained firms.
Does Borrowing from Banks Cost More than Borrowing from the Market? Journal of Finance (2020), 75(2), 905-947.
Internet Appendix Utah Winter Finance Presentation Video
Award: Marshall Blume Prize (First Prize)
This paper investigates the pricing of bank loans relative to capital market debt. The analysis uses a novel sample of loans matched with bond spreads from the same firm on the same date. After accounting for seniority, lenders earn a large premium relative to the bond-implied credit spread. In a sample of secured term loans to noninvestment-grade firms, the average premium is 140 to 170 bps or about half of the all-in-drawn spread. This is the first direct evidence of firms' willingness to pay for bank credit and raises questions about the nature of competition in the loan market.
Bank Capital and Lending Relationships, Journal of Finance (2018), 73(2), 787-830.
Internet Appendix Dealscan Lender Link Table
Award: AQR Top Finance Graduate Award
This paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships, bank capital, and the provision of credit. I find that bank-dependent firms borrow from well capitalized banks, while firms with access to the bond market borrow from banks with less capital. This matching of bank-dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy.
Municipal Bond Liquidity and Default Risk, Journal of Finance (2017), 72(4), 1683-1722.
This paper examines the pricing of bonds issued by states and local governments. I use three distinct, complementary approaches to decompose municipal bond spreads into default and liquidity components, finding that default risk accounts for 74% to 84% of the average municipal bond spread after adjusting for tax-exempt status. The first approach estimates the liquidity component using transaction data, the second measures the default component with credit default swap data, and the third is a quasi-natural experiment that estimates changes in default risk around pre-refunding events. The price of default risk is high given the rare incidence of municipal default and implies a high risk premium.