Research
Job market paper:
with David Sloth (Danske Bank)
Why do customers in OTC markets form long-term relationships with dealers? Using data from a large European dealer, we find that the customers who have a strong relationship with the dealer receive substantially lower bid-ask spreads and more frequent quotes. In turn, relationship customers are more likely to contact the dealer for a quote, when they actually intend to trade, solving a moral hazard problem. We provide evidence that the dealer-customer relationship is defined at the institutional level and is not exclusive to a specific asset class. Leveraging employee-level data, we document that salespeople — a specific category of dealer employees — play an important coordinating role within the dealer, by ensuring that relationship discounts are applied in all asset classes. Our findings imply that OTC markets should be understood through the lens of repeated games, where cooperation and reputation are important.
Presentations:
AFA 2023 (Poster Session), UC Berkeley Haas Lunch Seminar, California State University Fullerton, Dauphine Finance PhD Workshop, HEC Paris Brownbag (x2), EFA 2023 (Poster Session), HEC Paris PhD Workshop, Junior Academic Research Seminars, The Microstructure Exchange, CFTC (scheduled), ESMA (scheduled)
Working papers:
I study the use of reference prices in OTC markets in U.S. corporate bond markets. First, I establish that reference prices are of use to market participants as they provide traders with an estimate of the asset’s current value even when there is no trading in the asset. I then show that reference prices can lead to improvements in market liquidity, using the introduction of MarketAxess’ Composite+ in January 2018 as a natural experiment. Lastly, I highlight the dark side of reference prices. Reference prices rely partially or fully on inputs from dealers and I argue that dealers have an incentive to bias their inputs to extract larger rents when trading with customers. The findings reveal that widespread adoption of reference prices by market participants has the potential to reduce dealers’ market power and lower transaction costs. Yet, excessive reliance on reference prices, coupled with inadequate oversight of dealers, may lead to perverse outcomes where transaction costs actually increase.
Work in progress:
Retail ESG investments: Sustainability or Speculation?
with Tianhao Yao (SMU) and Nicolas-Palm Perez (Saxo Bank)
What motivates retail traders to invest in green stocks? We analyse a unique dataset of 300,000 retail stock portfolios and document a puzzling fact: investors with a high share of green stocks simultaneously hold high shares of brown (polluting) stocks. We show that these green investors trade more often, use more leverage and speculate more. These findings suggest that a majority of retail investors hold green stocks such as Tesla and Plug Power not because these companies are sustainable, but for speculative purposes. We explore the implications of these findings for policymakers, offering insights into strategies to foster green investments, considering the revealed preferences of retail traders.
Dynamics of the Securities Lending Market
with Jean-Edouard Colliard (HEC Paris), Thierry Foucault (HEC Paris) and Pekka Honkanen (University of Georgia)
Retail derivative trading during the Covid-19 pandemic
with Nicolas-Palm Perez (Saxo Bank)