Working Papers:
1. Bank balance sheet constraints and mutual fund fragility, with V. Ivashina, updated July 2025.
Revise & Resubmit at the Review of Financial Studies.
We develop a methodology to connect individual bonds to dealer banks by exploiting two robust patterns: home-country bias and the persistence of underwriting relationships. Using these connections, we show that the introduction of the leverage ratio for European banks significantly reduced bond liquidity. We also show that, during the onset of the 2020 pandemic, bond mutual funds more exposed to dealer banks’ balance sheet constraints experienced substantially larger outflows. These findings highlight the critical role of the interaction between bank regulation and fragility in the broader financial system.
2. Do non-banks need access to the lender of last resort? Evidence from fund runs, with M. Hoerova, updated Sep 2025.
Revise & Resubmit at the Review of Financial Studies.
Are central bank tools effective in reaching non-banks with no access to the lender of last resort facilities? Using runs on mutual funds in March 2020 as a laboratory, we show that, following the announcement of large-scale purchases, funds with higher ex ante shares of assets eligible for central bank purchases saw their performance improve by 3.6 percentage points and outflows decrease by 62% relative to otherwise similar funds. Following central bank liquidity provision to banks, the growth rate of repo lending to funds by banks more exposed to the system-wide liquidity crisis was significantly higher compared to other banks. Funds whose relationship banks borrowed from the lender of last resort had lower outflows relative to the other funds.
3. Investor heterogeneity and large scale asset purchases, with V. De Falco, updated July 2025.
Reject & Resubmit at the Journal of Finance.
We show that the impact of large-scale asset purchases depends on cross-sectional and time-varying heterogeneity in the investor base. Using security-level holdings across investor types, we find that bonds held by more price-elastic investors exhibit significantly smaller yield responses — 40% lower at the 50th versus 25th percentiles of the elasticity distribution. The impact is non-linear and intensifies as the stock of purchases grows, because the investor base becomes more inelastic. We construct a novel shift-share instrument and show that portfolio rebalancing raises prices of non-eligible assets. The strength of these spillovers depends both on investor elasticity and their exposure to purchases.
4. From purchases to exit: Central bank interventions in corporate debt markets, with G. Schepens, updated July 2025.
Revise & Resubmit at the Journal of Monetary Economics.
Central banks increasingly act as market-makers-of-last-resort, yet the impact and exit of such interventions remain poorly understood. Using euro-area data, we analyze the cycle of market freeze, intervention, and exit in short-term debt markets. A run on money market funds (MMFs) triggered a collapse in these markets in March 2020. Firms replaced only 27% of lost funding through credit lines. The European Central Bank intervened, fully replacing MMFs for some firms and allowing them to issue more debt at lower rates and longer maturities. After the ECB’s exit, more-exposed firms faced higher yields (+20.2 bps), reduced MMF investments, and fewer new relationships. Credit line take-up did not materially change post-exit.
5. The Original Sin revisited: Investor composition and sovereign risk, with S. Belz, WP 2025.
This paper proposes a new trade-off for emerging-market sovereign borrowing. Borrowing in local currency insulates sovereigns from default but increases the severity of bond fire sales in bad times, as local-currency bonds are endogenously held by intermediaries more vulnerable to fire-selling. We start by documenting three facts. First, investors with open-end funding structures who are subject to performance-based withdrawals hold most external local-currency debt. Investors with long-term and stable funding prefer to hold hard-currency bonds. Second, when open-ended intermediaries face funding withdrawals, local-currency bond prices fall differentially and issuers reallocate by issuing in hard currency. Third, issuers who have shifted towards issuing more local currency debt in recent years are more likely to experience bond market fragility. We rationalize these facts in a model where foreign households demand money-like claims denominated in their own currency from financiers who intermediate bond markets. Creditor sorting and bond fire sales arise endogenously from a complementarity between the open-end funding structure and the exchange rate risk embedded in local-currency debt. Our findings lean against conventional policy wisdom about the benefits of local-currency financing for financial stability.
6. Fund Fragility: The role of investor base, with N. Allaire, and M. Hoerova, ECB Working Paper No. 2023/2874.
Mutual fund fragility has been linked to liquidity transformation by funds. We show that it matters whom funds provide liquidity to. Two dimensions of fund ownership base affect financial fragility: owner type and owner domicile. Comparing flows across different fund shares of the same fund on the same day, we find that fund shares held more by other mutual funds (households) suffer significantly higher (lower) redemptions. Furthermore, fund shares held more by non-domestic funds suffer substantially higher redemptions. We link redemptions by the most run-prone fund owners to their desire to minimize fire-sale spillovers to their own portfolios.
7. Is the bond market competitive? Evidence from the ECB’s asset purchase programme, with S. Corradin, and P. Collin-Dufresne, updated Sep 2025.
We document a predictable rise towards month-end, followed by a subsequent drop, in sovereign bond prices during the Eurosystem’s Public Sector Purchase Program (PSPP), with no evidence of a correlated pattern in the Eurosystem’s trades. We model the PSPP as a dynamic search-bargaining model of Bertrand competition under uncertainty, in which imperfect competition among dealers generates a predictable pattern in prices that is uncorrelated with the trading volume. Consistent with the model, the price anomaly is more significant: (a) for bonds specifically targeted by the PSPP, (b) during months with fewer counterparties, and (c) when the Eurosystem purchases are larger.
8. Investing in Safety, with V. De Falco an M. Hoerova, WP 2024.
We offer an investor-based perspective on the demand for safe assets and the determination of convenience yields. Using proprietary securities holdings data, we characterize the investor base of both national and supranational safe assets in Europe. To determine who the marginal investor is, we exploit the largest ever joint issuance of supranational bonds by the European Commission to link how different investors rebalance their portfolios following this large shock to the supply of safe assets. We show that, for the same security, the marginal investors in supranational bonds are mutual funds and banks. These investors view the AAA-rated Commission bonds as substitutes for other supranational bonds. To study portfolio re-balancing of investors we construct an instrument based on their ex-ante propensity to hold other supranational bonds. We show that when they acquire Commission bonds, they re-balance away from other supranational bonds and, as a result, the yields on those bonds increase. However, investors do not view the Commission bonds as substitutes for national government bonds. We show that this result is driven by the domestic investors who do not substitute away from national bonds following the Commission bond issuance. Such home bias of domestic investors towards national bonds may help explain why the AAA-rated Commission bonds have substantially higher yields compared to national government AAA-rated securities.
9. The (re)allocation of bank risk, with G. Bekaert, WP 2020.
Little is known about the location of bank risk, i.e., which investors in which countries hold bank-issued securities like bonds and stocks. In this paper, we analyze the (re-)distribution of bank risk across asset classes (short- and long-term debt, equity), across investor types and across geographic locations. We also differentiate bank holdings according to riskiness based on credit ratings and yield spreads. We use the Securities Holdings Statistics database for the euro area which contains information on securities holdings at the ISIN level. Our main findings are as follows. First, bank risk is held disproportionately by other banks. Second, households are disproportionally exposed to riskier bank securities. Third, about 30% of bank securities are held outside the euro area, with these percentages larger (smaller) for short term debt and equities (long term debt). Geographically, large issuers of bank risk such as France and Germany, also hold most of the bank risk, with the exception of the Netherlands, which, despite being a top 5 issuer, holds almost no bank securities. Fourth, the holding bank risk is highly concentrated domestically, with the concentration more extreme for countries such as Greece, Italy and Portugal, which hold more than 70% of their bank’s securities domestically. The domestic concentration of bank risk is (much) more severe than the domestic concentration of non-bank corporate securities and sovereign debt. Fifth, re-allocation is overall statistically significant but economically more important for bonds than for equities. Finally, we exploit the inclusion of some banks on the list of other systemically important institutions (O-SII) – which makes them subject to more stringent supervisory and regulatory requirements – as a shock to the riskiness of securities issued by those banks. Following the inclusion on the OSII list, bank stock (bond) prices decrease (increase) relative to stock (bond) prices of banks not included on the list. In terms of holdings, other banks increase their holdings of equity and decrease their holdings of bonds issued by the OSII-designated banks. Households and insurances likewise increase holdings of equity issued by the OSII-designated banks. By contrast, investment funds and financial vehicle corporations decrease holdings of equity issued by the OSII-designated banks.
10. Asymmetries at the core of short-term return predictability, with B. Buchwalter and T. Tedongap, updated May 2025.
We propose a novel approach to improve short-term equity return predictability by analyzing truncated high-frequency return distributions. We segment returns into core and tail components, focusing on core and tail asymmetries-differences between 'typical' or 'extreme' upside and downside variances. Our empirical findings show that these predictors achieve an in-sample adjusted R 2 of about 7% and an out-of-sample R 2 exceeding 4% for one-month-ahead market return forecasts, outperforming traditional predictors such as valuation ratios and the variance risk premium. The core asymmetry, rather than the tail asymmetry, drives the predictive power.
Published Articles:
3. Competition among high-frequency traders and market quality, 2024, Journal of Economic Dynamics and Control, Vol. 166, 104922.
2. Bank to sovereign risk spillovers across borders: Evidence from the ECB’s Comprehensive Assessment with B. Schwaab, 2018, Journal of Empirical Finance, Vol. 49, 247-262.
1. Sovereign to corporate risk spillovers, with P. Augustin, H. Boustanifar and J. Schnitzler, 2018, Journal of Money, Credit and Banking, Vol. 50 (5), 857-891.
Other papers / Discussion papers / Policy papers:
11. A diverse investor base impacts the effectiveness of large-scale asset purchases, with V. De Falco, RESEARCH BULLETIN NO. 120. Also published as a VOXEU COLUMN, (2024).
10. The Climate and the Economy, with B. Mackowiak, D. Marques-Ibanez, C. Olovsson, A. Popov, D. Porcellacchia, and G. Schepens, DISCUSSION PAPER - No. 22, (2023).
9. Navigating liquidity crises in non-banks: An assessment of central bank policies, with M. Hoerova, RESEARCH BULLETIN NO. 108. Also published as a VOXEU COLUMN and SUERF Policy Brief, (2023).
8. Can Europe be a green innovation leader?, with P. Aghion, L. Boneva, L. Laeven, C. Olovsson, A. Popov, and E. Rancoita, THE ECB BLOG, (2022).
7. Financial markets and green innovation, with P. Aghion, L. Boneva, L. Laeven, C. Olovsson, A. Popov, and E. Rancoita, DISCUSSION PAPER - No. 19, (2022).
6. Bank leverage constraints and bond market illiquidity during the COVID-19 crisis, with V. Ivashina, RESEARCH BULLETIN NO. 89. Also published as a VOXEU COLUMN, (2021).
5. How does competition among high-frequency traders affect market liquidity?, RESEARCH BULLETIN NO. 78. Also published as a VOXEU COLUMN, (2020).
4. How is a firm’s credit risk affected by sovereign risk?, RESEARCH BULLETIN NO. 53, (2018).
3. The ECB’s Asset Purchase Programme: An early assessment, with P. Andrade, F. de Fiore, P. Karadi, and O. Tristani, DISCUSSION PAPER - No. 1, (2016).
2. The reanchoring channel of QE: The ECB Asset Purchase Programme and long-term inflation expectations, with P. Andrade, F. de Fiore, P. Karadi, and O. Tristani, WP (2016).
1. Asymmetry matters: A high-frequency risk-reward trade-off, with R. Tédongap, WP 2012.
Conference Discussions (selected):
1. Discussion of “Intermediary Balance Sheet Constraints, Bond Mutual Funds’ Strategies, and Bond Returns” by Mariassunta Giannetti, Chotibhak Jotikasthira, Andreas Rapp, Martin Waibel.
First University of Chicago Illinois (UIC) Finance Conference, 2024. Regulating Financial Markets Conference, Frankfurt School, 2024
2. Discussion of “Monetary Policy, Investor Flows, and Loan Fund Fragility” by Nicola Cetorelli, Gabriele La Spada, João Santos.
ECB-New York Fed Workshop on Non-Bank Financial Institutions, 2023
3, Discussion of “The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area” by William Arrata, Benoit Nguyen, Imene Rahmouni-Rousseau, and Miklos Vari.
CEBRA Annual Meeting 2018
4. Discussion of “A regression Discontinuity Design for Ordinal Running Variables: Evaluating Central Bank Purchases of Corporate Bonds” by Fan Li, Andrea Mercatanti, Taneli Mäkinen and Andrea Silvestrini.
Workshop on the impact of CSPP on financing conditions, 2018
Disclaimer: The views expressed on this website are my own and do not necessarily reflect those of the European Central Bank or the Eurosystem.