Assistant professor at the Research Center SAFE and Goethe University Frankfurt
Empirical Finance, Asset Pricing, Liquidity, Fixed Income Pricing, Systemic risk, Funding Markets
Address: Research Center SAFE at Goethe University
House of Finance
60323 Frankfurt am Main, Germany
Phone: +49 69 798 33704
SAFE Working Paper No. 215
New version available upon request!
Following the Great Recession, increased regulatory efforts, quantitative easing, and flights-to-safety gave rise to a high-quality, liquid assets shortage and low interest rates in Europe. In this setting, we study the functioning of the securities lending market for the prime European benchmark securities, German Treasuries, and report evidence of agent-lenders’ oligopolistic pricing behavior and under-representation of lenders’ interests. These inefficiencies are most evident in the long maturity segment, where most lenders are wealth preservation agents, pension funds and life insurers, whose inability to capitalize on lending income has non-negligible negative welfare consequences for the average European citizen.
“Much ado about nothing: A study of differential pricing and liquidity of short and long term bonds”, with Joost Driessen and Theo Nijman
SAFE Working Paper No. 238
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.
“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 and SAFE Working Paper No. 183
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.
Netspar Discussion Paper No. 11/2015-074
New version available upon request!
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 information content of securities lending along the sovereign risk spectrum”, with Zsuzsa Réka Huszár
“Institutional choice between funding markets: repo vs. securities lending”, with Loriana Pelizzon
"The Corporate debt supply effects of the Eurosystem's Collateral Framework", with Loriana Pelizzon, Max Riedel, and Marti Subrahmanyan
Fellowships and memberships
2012- Netspar Research Fellow
2013- AFA, EFA, WFA, FMA