about
I am an economist at the Board of Governors of the Federal Reserve System in the Division of Financial Stability. My research interests include macrofinance, asset pricing, and financial intermediation.
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.
updates
working papers
Making Money
with Gary B. Gorton and Sharon Y. Ross
Abstract · PDF · SSRN · NBER WP #29710
It is difficult for private agents to produce money that circulates at par with no questions asked. We study two cases of privately-produced money: pre-Civil War U.S. private banknotes and modern stablecoins. Private monies are introduced when there are no better alternatives, but they initially carry an inconvenience yield. Over time, these monies may become more money-like, but they do not always achieve a positive convenience yield. Technology advances and reputation formation pushed private banknotes toward a positive convenience yield. We show that the same forces are at work for stablecoins.
The Collateral Premium and Levered Safe-Asset Production
2020 BlackRock Applied Research Award Finalist
Abstract · PDF · SSRN · FEDS #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
Abstract · PDF · SSRN · FEDS WP #22–055 · 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.
Investor Information and Bank Instability During the Euro Crisis
with Silvia Iorgova
Abstract · PDF · IMF WP #2021/005
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.
Safe-Asset Migration
Abstract · PDF · 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.
published work
Who Ran on Repo?
with Gary B. Gorton and Andrew Metrick
AEA Papers and Proceedings (2020)
Abstract · PDF · Link
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
Good Collateral, Bad Money
with Gary B. Gorton, Elizabeth C. Klee, Sharon Y. Ross, and Alexandros Vardoulakis
Abstract
Debt plays an essential role in the financial system and often serves as money or collateral. But debt that is good collateral is not always good money. Private money issuers may hold reserves to back their liabilities, yet these reserves may be insufficient in bad times and, thus, runs on private money issuers are possible. We show how debt that is bad money can maintain a constant price so long as it is good collateral, even if the debt does not pay interest. Owners of the debt are compensated for its run risk because they can lend debt to levered traders. Debt that is good collateral, but bad money is useful because it serves as margin for leveraged positions. Stablecoins are an example of good collateral, bad money.
Capital in the Financial Crisis
with Timothy F. Geithner and Andrew Metrick
Abstract
Why was the financial system stabilized with so little additional capital and very little additional public capital by mid-2009 despite substantial loss estimates? In early 2009, mark-to-market losses implied $800 billion of credit losses remaining, and consensus estimates stood at $340 billion. But the stress test in May 2009 required banks to raise only an incremental $75 billion of capital. Why? First, credit losses are not equivalent to capital needs because banks that remain a going concern can offset losses with revenues. Second, net income and actuarial loss estimates — rather than market-implied losses — were the proper basis for the stress test estimates of capital needs. Third, the expected path of the economy improved with macroeconomic policy actions.
Pricing With Almost-Arbitrages
with Sharon Y. Ross
Abstract
We calculate realistic returns to more than 120 collateralized, bank-intermediated arbitrage identities to proxy for daily changes in intermediaries’ marginal value of wealth. Increased leverage constraints mean intermediaries delever, and arbitrage returns grow. Large arbitrage returns correspond to high marginal values of intermediaries’ wealth. We show how the marginal investor changes over time.
other writing
Forecasting the Economy During Covid-19 Link · PDF
with Sharon Y. Ross
May 26, 2020, Yale Program on Financial Stability
A Long Way to Go for Emerging Markets Link · PDF
with Ahyan Panjwani
April 26, 2020, Yale Program on Financial Stability
Fed Actions Support Agency Mortgage REITs Link · PDF
with Sharon Y. Ross
April 22, 2020, Yale Program on Financial Stability
The FHLBs During the Coronavirus Crisis, Part 2 Link · PDF
April 6, 2020, Yale Program on Financial Stability
Flight from Maturity During the Coronavirus Crisis Link · PDF
with Sharon Y. Ross, Gary B. Gorton, and Andrew Metrick
March 26, 2020, Yale Program on Financial Stability
The FHLBs During the Coronavirus Crisis, Part 1 Link · PDF
March 24, 2020, Yale Program on Financial Stability
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