A central assumption in asset pricing theories is that investors adopt dynamic portfolio optimization. However, the presence of investors following static asset allocation strategies challenges this assumption. This paper presents a tractable model with dynamic investors, whose asset allocation responds to news, alongside static investors, whose asset allocation is static despite changing investment opportunities. The model shows that wealth invested under static asset allocation strategies generates aggregate price pressure and reduces the sensitivity of individual stock returns to bond returns, a novel prediction supported by the data. The results suggest that investors' intended course of action matters for asset prices.

Presented at the 6th Asset Pricing Conference by LTI@UniTo (2023), Bank of Italy (2024), Bayes Business School (2024), Boston College (2024), CEPR Paris Symposium (2025), ESCP (2024), EFMA (2024), Finance Theory Group Summer Meeting (2024), Goethe University (2023), Imperial College Business School (2024), NFA (2025), Norwegian School of Economics (2024), Nova Finance PhD Final Countdown (2023), Nova School of Business and Economics (2024), Rotterdam School of Management (2024), SAFE Research Offsite (2023), Leibniz Institute for Financial Research SAFE (2023), University of Manchester (2025), University of Mannheim (2023), USI Lugano (2023), Venice Finance Workshop (2023), and Warwick Business School (2024).

Awards: best Ph.D. paper at the 2023 Asset Pricing Conference by LTI at Collegio Carlo Alberto, John A. Doukas best Ph.D. paper at the 2024 EFMA Conference.

This paper develops a preferred-habitat theory of the yield curve and the repo market that regards bonds as both investment assets and collateral. Habitat preferences for specific bonds introduce price differences between bonds with identical cash flows and generate special repo rates, namely collateralized borrowing rates significantly below the riskless rate. Special repo rates reduce arbitrageurs' short-selling activity, thus influencing their portfolio duration, the market price of interest rate risk, and the entire yield curve, over and above the valuation of specific bonds. This effect is consistent with the empirical evidence. Monetary policy recommendations are derived and illustrated by calibration. 

Presented at the AFA (scheduled), AFFI (2023), Bank of Italy (2022), Bocconi University (2023), Bundesbank (2024), Bundesbank Term Structure Workshop (2024), Central Bank Microstructure Conference (2023), CEPR Paris Symposium (2023), ChaMP (2024), German Finance Association (2023), Goethe University (2023), Henley Business School (2023), EFA (2024), Federal Reserve Board of Governors (2023), GRETA-CREDIT (2022), International Conference on Sovereign Bond Markets (2023), IRMC (2022), Lehigh University (2023),  Leibniz Institute for Financial Research SAFE (2022), LSE (2023), NFA (2023), NYU Stern (2022), NYU Stern doctoral seminar (2021, 2022),  Public Debt Management Conference (2024) , SGF (2024), University of Massachusetts Amherst (2023), Venice Finance Workshop (2023) and the Wharton School (2023).

Investors are inherently exposed to changes in market liquidity conditions. However, comparatively little research has been directed towards the optimal way to invest given a view on market liquidity. The paper shows how to construct derivatives written on the market liquidity of the underlying asset, and identifies their potential buyers and sellers. A simple valuation model shows that liquidity can be hedged by purchasing volatility in amounts based on the trading volume of the underlying asset. The model estimation generates a forward-looking  measure of aggregate market liquidity. Equilibrium analysis shows that derivatives on market liquidity can contribute to financial stability.    

Presented at Boston College (2024), Canadian Derivatives Institute Conference (2024),  Derivative Markets Conference (2022), Frankfurt School of Finance & Management (2024), German Finance Association (2023), Goethe University Frankfurt (2022), Leibniz Institute for Financial Research SAFE (2021), NYU Stern/Salomon Microstructure Meeting (2022), and Warwick Business School (2024). 

We document that the COVID-19 pandemic triggered a surge in the elasticity of non-financial corporate to sovereign credit default swaps in core European countries, characterized by strong fiscal capacity. In peripheral countries with lower fiscal capacity, the pandemic had essentially no impact on such elasticity. We show that this result is primarily explained by a pandemic-induced repricing of government support, which we model within an asset pricing framework featuring defaultable corporate and sovereign debt. Our results underscore the importance of sovereign fiscal capacity, which helps providing relief to firms' financing costs in the event of a widespread economic contraction.

Presented at the AFA PhD session (2022), AFFI (2022), Bank of England (2022), CICF (2022), EFA (2021), Federal Reserve Bank of Atlanta (2021), Goethe University Frankfurt (2021), HEC Paris (2024), Leibniz Institute for Financial Research SAFE (2021), University of Neuchâtel (2024), New Zealand Finance Meeting (2021), Paris Meeting EUROFIDAI (2021), SoFiE (2022), SWFA (2022), Swiss Finance Institute (2021), University of Turin (2021),  University of Verona (2021), UNSW Sidney (2024), UTS Sidney (2024), and WFA (2022). 

Replication code