Publications

Refereed Publications

S. Murray and S. Nikolova, 2022. The Bond Pricing Implications of Rating-Based Capital Requirements, Journal of Financial and Quantitative Analysis 57, 2177-2207.

2018 Best Paper Award, INQUIRE Europe and INQUIRE UK Joint Seminar
We find that capital regulations impact asset prices. Rating-based capital requirements affect insurers' demand for bonds with certain characteristics. Bonds with low (high) demand outperform (underperform) relative to a frictionless benchmark, but only after the implementation of rating-based capital requirements' for insurers in 1993.

We find that insurers with more similar portfolios have larger subsequent common sales. When faced with a shock to their assets or liabilities, the larger common sales of exposed insurers with greater portfolio similarity have a larger price impact.

- - - We find two sets of effects from insurance regulators' reform of capital requirements for mortgage-backed securities (MBS) in 2009-2010. Insurers are less likely to sell distressed MBS, gains trade corporate bonds, and/or raise external financing, but they also purchase more low-rated MBS.

- - - We study the allocation practices of corporate bond underwriters and show that profits from the allocation of underpriced offerings to investors increase with these investors’ information production during the bookbuilding process and, more strongly, with investors’ prior trading with underwriters.

A. D. Jagolinzer, K. W. Hanley and S. Nikolova, 2018. Strategic Estimation of Asset Fair Values, Journal of Accounting and Economics 66, 25-45.

- - - We find that for the same security held at the same time, different insurers report different fair values (FVs) and different input levels. FV inflation is higher, and self-estimation more likely, when insurers report using Level 3 inputs when the consensus level is 2. Regardless of the reported input level, FV is greater when self-estimated. Insurers with stronger incentives to appear financially healthy choose to self-estimate, resulting in greater aggregate portfolio FV inflation.

G. Jostova, S. Nikolova, A. Philipov and C. W. Stahel, 2013. Momentum in Corporate Bond Returns, Review of Financial Studies 26, 1649-1693.

- - We find momentum in corporate bond returns. Momentum is driven by noninvestment grade bonds and is larger among bonds of private firms. Momentum profits do not appear to compensate for risk or be due to trading frictions, and bond momentum is not just a manifestation of equity momentum.

M. J. Flannery, S. Nikolova and Ö. Öztekin, 2012. Leverage Expectations and Bond Credit Spreads, Journal of Financial and Quantitative Analysis 47, 689-714. [Lead article]

- - We use capital structure theory to construct proxies for investors’ expectations about future leverage changes and find that these significantly affect bond yields, above and beyond the effect of contemporaneous leverage. Expectations under the trade-off, pecking order, and credit-rating theories of capital structure all receive empirical support, suggesting that investors view them as complementary when pricing corporate bonds.

M. J. Flannery and S. Nikolova, 2004. Market Discipline of U.S. Financial Firms: Recent Evidence and Research Issues, in Claudio Borio, William C. Hunter, George Kaufman, and Kostas Tsatsaronis, ed. Market Discipline Across Countries and Industries (MIT Press).