Zorka Simon

Assistant Professor
Research Center SAFE at Goethe University Frankfurt

Research Interests
Empirical finance, Asset pricing, Liquidity, Fixed income, Credit risk, Derivatives

Contact Information
Address:   Research Center SAFE at Goethe University 
                 House of Finance
                 Theodor-W.-Adorno-Platz 3
                 60323 Frankfurt am Main, Germany
Email:      simon[at]safe.uni-frankfurt.de
Phone:     +49 69 798 33704

Working papers

“The liquidity and welfare implications of the securities lending market for European Treasuries”, with Zsuzsa Réka Huszár, new version: Sept 2017 

The growing demand for high quality liquid assets in the securities lending market gave rise to a new form of convenience yield for German treasuries as shown by the significantly higher auction prices and lower yields for bonds with higher expected lending income in the primary and secondary market. Pension funds and insurance firms could capitalize on this demand to generate additional revenues on their large low yield treasury portfolios. At year-end, with the banks’ withdrawal from the market, additional opportunities arise for nonbank lenders to become primary lenders and earn higher fees while providing the much needed funding liquidity.

“The missing piece of the puzzle: Liquidity premiums in inflation‐indexed markets”, 
with Joost Driessen and Theo Nijman, Netspar Discussion Paper No. 02/2014-066, new version: Sept 2017

Fleckenstein et al. (2014) document that nominal Treasuries trade at higher prices than inflation-swapped indexed bonds, which exactly replicate the nominal cash flows. We study whether this mispricing arises from liquidity premiums in inflation-indexed bonds (TIPS) and inflation swaps. Using US data, we show that the level of liquidity affects TIPS, whereas swap yields include a liquidity risk premium. We also allow for liquidity effects in nominal bonds. These results are based on a model with a systematic liquidity risk factor and asset-specific liquidity characteristics. We show that these liquidity (risk) premiums explain a substantial part of the TIPS underpricing.

"Much ado about nothing: A study of differential pricing and liquidity of short and long term bonds”, 
with Joost Driessen and Theo Nijman, 2016

Are yields of long-maturity bonds distorted by demand pressure of clientele investors, regulatory effects, or default, flight-to-safety or liquidity premiums? Using data on German nominal bonds between 2005 and 2015, we study the differential pricing and liquidity of short and long maturity bonds. We find statistically significant, but economically negligible segmentation in yields and some degree of liquidity segmentation of short-term versus long-term bonds. These results have important policy implications for the €3.5 trillion European pension and insurance industries: long maturity bond yields might be appropriate for the valuation of long-term liabilities.

“Not risk free: The relative pricing of euro area inflation-­indexed and nominal bonds”, Netspar Discussion Paper No. 11/2015-074, 2015

Selective default is an event in which a sovereign issuer chooses not to meet obligations on a class of bonds, while servicing her other debt. This paper presents unique empirical evidence of selective default risk premium in inflation-linked sovereign bond (ILB) yields of Germany, France and Italy. I identify this effect from the difference of breakeven rates from country pairs. Differencing controls for common components, such as the effect of inflation expectations, monetary policy or interest rate risk. I find that the remaining part in breakeven rates is explained by two systematic risk factors, liquidity and sovereign credit risks - both within and across countries. I link these findings to the ILB-nominal puzzle, which shows that ILBs are underpriced relative to nominal bonds of the same issuer. I show that this underpricing is due to relative risk premia differences between nominal and inflation-linked debt: ILBs are less liquid, moreover investors perceive them to have higher credit risk during the financial and euro crises. This implies an implicit seniority and a subsequent convenience yield in nominal bonds.

Work in progress

“The Positive and Negative Information in Treasury Securities Lending Along the Sovereign Risk Spectrum”, with Zsuzsa Réka Huszár

Fellowships and memberships
2012-         Netspar junior research fellow    

2013-         American Finance Association, European Finance Association, Western Finance Association, Financial                       Management Association