I am an economist at the Board of Governors of the Federal Reserve System. My research interests include asset pricing, financial intermediation, and safe assets.
I received my Ph.D. in financial economics from the Yale School of Management. Previously, I was an economist at Morgan Stanley and a research associate at the Yale Program on Financial Stability.
with Gary B. Gorton and Sharon Y. Ross
Revise and Resubmit, Journal of Finance
Abstract · SSRN · NBER WP #29710
It is hard for private agents to produce money that circulates at par with no questions asked about its backing. Privately-produced money was last circulated in the U.S. before the Civil War as private banknotes. Stablecoins are new privately-produced money. Stablecoins are currently used to facilitate crypto trading. But could stablecoins eventually circulate as a hand-to-hand currency? We study pre-Civil War banknotes to determine what forces pushed these monies from a negative convenience yield to a positive convenience yield. We then ask whether the same forces affect stablecoins, pushing them toward positive convenience yields.
The Collateral Premium and Levered Safe-Asset Production
Reject and Resubmit, Management Science
2020 BlackRock Applied Research Award Finalist
Abstract · SSRN · FEDS WP #2022–046
Banks are vital suppliers of money-like safe assets, which they produce by issuing short-term liabilities and pledging collateral. But their ability to create safe assets varies over time as leverage constraints fluctuate. I present a model to describe private safe-asset production when intermediaries face leverage constraints. I measure bank leverage constraints using bank-intermediated basis trades. The collateral premium — a strategy long Treasuries used more often as repo collateral and short Treasuries used less often — has a positive expected return of 22 basis points per year because the collateral premium compensates for bank leverage risk.
Cash-Hedged Stock Returns
with Landon J. Ross and Sharon Y. Ross
2023 SWFA best paper award winner in investments
2022 FMA best paper semifinalist in investments
Abstract · SSRN · FEDS WP #2022–055 · OFR WP #22–03
Corporate cash piles vary across companies and over time. A firm's cash holding is an implicit position in a low-return asset that is correlated across firms. Cash generates variation in beta estimates. We show how investors can hedge out the cash on firms' balance sheets when making portfolio choices. We decompose stock betas into components that depend on the firm's cash holding, return on cash, and cash-hedged return. Common asset pricing premia — size, value, and momentum — have large implicit cash positions. Portfolios of cash-hedged premia often have higher Sharpe ratios because firms' cash returns are correlated.
Leverage and Stablecoin Pegs
with Gary B. Gorton, Elizabeth C. Klee, Sharon Y. Ross, and Alexandros Vardoulakis
Abstract · SSRN · NBER WP #30796 · VoxEU Column
Money is debt that circulates with no questions asked. Stablecoins are a new form of private money that circulate with many questions asked. We show how stablecoins can maintain a constant price even though they face run risk and pay no interest. Stablecoin holders are indirectly compensated for stablecoin run risk because they can lend the coins to levered traders. When speculative demand is strong, levered traders are willing to pay a premium to borrow stablecoins. Therefore, the stablecoin can support a $1 peg even with higher levels of run risk.
Abstract · SSRN
Post-crisis reforms changed the location of safe-asset production. I propose a pair of tests to identify who issues safe assets and which safe-asset issuers opportunistically time issuance when the price of safe assets is high. The Federal Home Loan Bank (FHLB) system is a newly crucial safe-asset producer. FHLB debt issuance is an important determinant of the price of safe assets, and FHLB debt issuance responds to day-to-day fluctuations in safe-asset demand — measured via the convenience yield. FHLBs issue more after an unexpected increase in the convenience yield, and an unexpectedly large FHLB issue decreases the convenience yield. The FHLBs’ ability to produce safe assets depends on their implicit government backing, a potential source of concern for future policymakers.
Investor Information and Bank Instability During the Euro Crisis
with Silvia Iorgova
Journal of Financial Stability (2023)
Abstract · Published Version
Outside of financial crises, investors have little incentive to produce private information on banks' short-term liabilities held as information-insensitive safe assets. The same does not hold during crises. We compare the information effects of different policy interventions. We measure information production using credit default swap spreads during the Global Financial Crisis and the European debt crisis. We study abnormal information production around major events and find that capital injections reduced abnormal information production while early European stress tests increased it. High levels of information production predict bank balance sheet contraction and higher government expenditures to support financial institutions.
Who Ran on Repo?
with Gary B. Gorton and Andrew Metrick
AEA Papers and Proceedings (2020)
Abstract · Published Version
The sale and repurchase (repo) market played a central role in the recent financial crisis. From the second quarter of 2007 to the first quarter of 2009, net repo financing provided to U.S. banks and broker-dealers fell by about $900 billion — more than half of its pre-crisis total. Significant details of this “run on repo” remain shrouded because many of the providers of repo finance are lightly regulated or unregulated cash pools. In this paper, we supplement the best available official data sources with a unique market survey and data from the footnotes of public companies’ quarterly filings to provide an updated picture of the dynamics of the repo run. We provide evidence that the flight of foreign financial institutions, domestic and offshore hedge funds, and other unregulated cash pools predominantly drove the run. Our analysis highlights the danger of relying exclusively on data from regulated institutions, which would miss the most important parts of the run.
works in progress
Risk and Segmentation in Covered-Interest Parity Arbitrage
with Tobias J. Moskowitz, Sharon Y. Ross, and Kaushik Vasudevan
Prevailing theories of financial intermediation struggle to explain a striking feature of bank-intermediated arbitrages: spreads on these trades exhibit substantial cross-sectional variation in sign and magnitude. We use confidential supervisory data — covering $25 trillion in daily notional exposures on average — to study covered-interest parity (CIP) deviations in currency markets. We uncover three novel forces important for explaining cross-sectional variation in CIP deviations: foreign safe asset scarcity, which makes CIP arbitrage imperfect and risky; market segmentation, with banks specializing in different markets; and concentration of demand. Our findings highlight the presence of risk in ostensibly riskless arbitrage and the importance of segmentation and search frictions in even the most liquid markets.
with Gary B. Gorton and Sharon Y. Ross
Pricing With Almost-Arbitrages
with Sharon Y. Ross
Capital in the Financial Crisis
with Timothy F. Geithner and Andrew Metrick
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