Thomas Heyden

Latest Research:

Publications:

Is the `war chest' actually a global public good? Evidence from exchange rates during the Covid-19 shock, 2020, (with Soner Baskaya and Livio Stracca).

The elements of the Global Financial Safety Net (GFSN), such as foreign exchange reserves and access to IMF financing, may cushion the effect of external financial shocks on financial markets in individual countries. We focus on the multilateral dimension of this layer of protection by estimating the international spill-overs from the safety net. We investigate the Covid-19 related financial shock in March 2020 and use spatial econometric techniques to shed light on the multilateral dimension. In find that, at least in some cases, neighbors' safety net is more important than countries' own protection, in particular for pre-crisis foreign exchange reserves holdings, suggesting the presence of positive externalities. An implication of our results is that there could be an under-provision of GFSN as individual countries do not internalize the positive externalities in their decisions.

When Equity Fails - An Appraisal of Revenue Sharing as the Last Resort, 2020, (with Christian Haas).

Abstract - We study the trade-off venture capitalists encounter in a financing framework under moral hazard. The venture capitalist has the option to supply funds either within a revenue-sharing contract or via equity but faces a hidden effort problem. While projects with a low degree of moral hazard yield higher returns to the venture capitalist when financed by equity, revenue-sharing contracts become superior as moral hazard increases. At high moral hazard levels, revenue sharing becomes the sole financing option and hence can raise welfare. We apply our model in the context of initial coin offerings as a modern form of revenue sharing.

Under revision at the Journal of Financial and Quantitative Analysis.

Market Reactions to the Arrival and Containment of COVID-19: An Event Study, 2020, Finance Research Letters, Forthcoming (with Kim J. Heyden) .

Abstract - We study the short-term market reactions of US and European stocks during the beginning of the COVID-19 pandemic. Employing an event study, we document that stocks react significantly negative to the announcement of the first death in a given country. While our results suggest that the announcement of country-specific fiscal policy measures negatively affect stock returns, monetary policy measures have the potential to calm markets. These reactions are either intensified or lessened by firm-specific characteristics such as tangible assets, liquidity, and institutional holdings.

Rating changes and portfolio flows to emerging markets: Evidence from active and passive funds, 2019, Economics Letters, 178, 37-45 (with Christina E. Bannier and Peter Tillmann).

Abstract - We study the short-term impact of sovereign rating and outlook changes on daily portfolio flows of active and passive mutual funds to emerging market economies. Our results indicate that active bond fund flows react only to negative rating actions, whereas passive bond fund flows are sensitive to both positive and negative rating actions. Active and passive country flows hence do not always follow the same determinants.