Abstract: We measure the elasticity of demand for Treasuries at auction directly from bidding data. From 1992 to 2010, demand for Treasuries was surprisingly elastic: a 1% increase in the supply of Treasuries relative to the amount outstanding corresponded to a 2 basis point increase in long-term yields. Since 2010, demand has become almost five times more inelastic, implying that yields now rise by 9 basis points per 1% increase in supply. This deterioration of demand is also apparent in the secondary market. Prior to 2010, long-term yields declined on average by 1.5 basis points after auctions and these declines have been concentrated in auctions with strong investor demand. After 2010, this trend has reversed and yields no longer fall after auctions. This weaker demand for Treasuries coincides with less foreign investor demand and reduced secondary market liquidity.

Talks: USC Marshall, Dartmouth, 2025 MRS International Risk Conference, 2025 Responsible Research Summit, 9th Conference on Fixed Income Markets, Federal Reserve Board, Harvard Business School, Northeastern University.

Abstract: We show that US monetary policy is transmitted internationally through the factor structure of exchange rates. Following an unexpected easing, investment funds sell safe and buy risky currencies. Global US banks, similarly, tilt their distribution of foreign loan origination toward currencies of greater systematic currency risk. The effects of monetary policy on currency flows and loans persist for several months and feed into the leverage and real investment decisions of firms and, in particular, those that operate using a high-risk currency. We argue that currencies' factor exposures are a lens through which we can understand the international transmission of US monetary policy.

Talks: NBER Summer Institute 2025, SFS Cavalcade 2025, 8th World Symposium on Investment Research, 2025 IBEFA Meeting at ASSA, Workshop on Exchange Rates (NBB), Brandeis University, San Francisco Fed, 2024 FIFI Conference, Commonwealth Finance Workshop at UVA, Boston University, 2024 Northern Finance Association, Boston College, Babson College, 2024 European Finance Association, Vienna University of Economics and Business.

Abstract: Over 85% of all foreign exchange (FX) transactions involve the US dollar, whereas the United States accounts for a much smaller fraction of global economic activity. My paper attributes the dominance of the dollar in FX trading to strategic avoidance of price impact. Using a novel identification strategy, I show that on average 13% of the volume in dollar pairs arises from using the dollar as a vehicle currency to indirectly exchange two non-dollar currencies. To rationalise this result, I derive three model--based conditions for dollar dominance. I empirically test these conditions and provide evidence consistent with the theoretical framework.

Talks: Tilburg University, Federal Reserve Board, Baruch College, Analysis Group, Northeastern University, UVA Darden, Wharton, INSEAD, CUHK, Cornerstone Research, Copenhagen Business School, ESCP Paris, BI Oslo, Babson College, 2022 American Finance Association, 2021 Southern Finance Association, University of Nottingham, 2021 FMA Annual Meeting, 27th Annual Meeting of the German Finance Association, BIS, 2nd PhD Student Symposium at the University of Texas at Austin, 2021 World Finance Conference, 2021 Oxford-ETH Macro-Finance Conference, 33rd Asian Finance Conference, 2021 IBEFA Summer Meeting, 37th International Conference of the French Finance Association, Imperial College London, 2021 Southwestern Finance Association, 33rd Australasian Finance & Banking Conference, Inter Finance PhD Seminar, University of St.Gallen, Stanford University.

Data: Holiday calendar used for computing non-overlapping holidays is available upon request.

Abstract: We devise a simple model of liquidity demand and supply to study dealers’ liquidity provision in currency markets. Drawing on a globally representative data set of currency trading volumes, we show that at times when dealers' intermediation capacity is constrained the cost of liquidity provision increases disproportionately relative to dealer-intermediated volume. Consequently, the otherwise strong and positive relation between liquidity costs and trading volume diminishes significantly when dealers face tighter Value-at-Risk limits or higher funding costs. Using various econometric approaches, we show that this nonlinear effect of dealer constraints on market liquidity primarily stems from a reduction in the elasticity of liquidity supply, rather than changes in liquidity demand.

Talks: 2024 European Finance Association, QCGBF at King’s Business School 2023 Annual Conference (poster session), 2023 IBEFA Meeting at ASSA, 2022 New Zealand Finance Meeting, 17th Central Bank Conference on the Microstructure of Financial Markets, ECB, University of Lugano, University College Dublin, Reichman University (IDC Herzliya), Boston Fed, VfS Annual Conference 2022, University of St.Gallen, Credit Suisse, CLS Group, 2022 SFI Research Days in Gerzensee, 11th Annual 2022 Stern/Salomon Center Microstructure Conference, King’s College London, 11th Workshop on Exchange Rates (SNB), BIS.

Abstract: The currency market is the world's largest financial market by trading volume. We show that even in this highly liquid market exposure to liquidity risk commands an economically significant risk premium of up to 3.6% per year. Liquidity risk is not subsumed by existing currency risk factors and successfully prices the cross-section of currency excess returns. Moreover, we find that liquidity risk and carry trade premia are correlated, although this correlation is limited to static rather than dynamic carry trades. Building upon this result, we propose a liquidity-based explanation for the carry trade, which adds significant explanatory power to existing theories.

Talks: 2023 Southern Finance Association, 2023 Northern Finance Association, 8th Conference on Fixed Income Markets, 17th End-Of-Year Conference of Swiss Economists, 2022 SFI Research Days in Gerzensee, 24th Annual Meeting of the Swiss Society for Financial Market Research, 2020 American Finance Association (poster session), University of St.Gallen.

Abstract: This work studies the information content of trades in the world’s largest over-the-counter (OTC) market, the foreign exchange (FX) market. It analyzes a novel, comprehensive order flow data set, distinguishing among different groups of market participants and covering a large cross-section of currency pairs. We find compelling evidence of heterogeneous superior information across agents, time, and currency pairs, consistent with the asymmetric information theory and OTC market fragmentation. A trading strategy based on the permanent price impact, capturing asymmetric information risk, generates high returns even after accounting for risk, transaction cost, and other common risk factors shown in the FX literature. 

Media coverage:

• hedgeweek, September 9, 2020: University of St Gallen analysis reveals new insights into FX market microstructure

• CLS, September 10, 2020: CLSMarketData: University of St.Gallen analysis reveals new insights into FX market microstructure

Talks: 2020 Southern Finance Association, 3rd World Symposium on Investment Research, 2020 Northern Finance Association, 2020 European Finance Association, 2020 Vienna Symposium on Foreign Exchange Markets, 95th Annual WEAI Conference, 2020 SFI Research Days, 2020 Microstructure Exchange Webinar, 9th Workshop on Exchange Rates (ECB), 2019 Annual Conference in International Finance, 18th Colloquium on Financial Markets, 2019 American Finance Association (poster session), 14th Central Bank Conference on the Microstructure of Financial Markets, CEU Cardenal Herrera University.