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Discussion Paper
Non-bank financial institutions and the slope of the yield curve
In this note, we examine how changes in the yield curve slope affect the provision of credit and intermediation services by non-bank financial institutions (NBFIs), including broker-dealers and hedge funds. Although these NBFIs typically do not lend directly to the non-financial sector, they indirectly support the flow of credit by investing in debt securities and extending financing to investors who own such securities.
Discussion Paper
Insights from revised Form FR2004 into primary dealer securities financing and MBS activity
The Primary Government Securities Dealers Reports (Form FR 2004) collect information at a weekly frequency on daily positions, cumulative transactions, financing, and fails of primary dealers in U.S. government and other fixed-income securities. The reports have been revised as of January 5, 2022 to increase the granularity of reporting.
Discussion Paper
Differences in Stock Returns of U.S. Firms with High and Low Tradability
In this note, I summarize the methodology and findings of my research paper and draw out the policy implications. The effects of GDP growth appear to matter more but the link between exchange rates and stock returns is also economically and statistically significant. The policy implications are that the spread in returns between U.S. firms with high and low tradability could provide a hedge against recessions. At the same time, stock returns are also informative about future exchange rate movements.
Working Paper
Firm characteristics and empirical factor models: a data-mining experiment
"A three-factor model using the standardized-unexpected-earnings and cashflow-to-price factors explains 15 well-known asset pricing anomalies." Our data-mining experiment provides a backdrop against which such claims can be evaluated. We construct three-factor linear pricing models that match return spreads associated with as many as 15 out of 27 commonly used firm characteristics over the 1971-2011 sample. We form target assets by sorting firms into ten portfolios on each of the chosen characteristics and form candidate pricing factors as long-short positions in the extreme decile ...
Working Paper
Tradability of Output, Business Cycles, and Asset Prices
I examine the effect of a firm's tradability, the proportion of output that is exported abroad, on its stock returns. There are three novel empirical findings: (1) firms with higher tradability have more cyclical asset returns; (2) firms with higher tradability have more cyclical earnings growth; (3) returns of a portfolio long on firms with the highest tradability and short on firms with the lowest tradability can predict the real exchange rate. The empirical patterns are consistent with the relative price adjustment of tradable and non-tradable goods to business cycles driven by endowment ...
Discussion Paper
Taxonomy of Studies on Interconnectedness
This note provides a taxonomy of existing studies in the literature on interconnectedness, focusing specifically on empirical measures.
Discussion Paper
Dealers' Treasury Market Intermediation and the Supplementary Leverage Ratio
Treasury market intermediation by dealers, including Treasury securities market making and financing, requires regulatory capital. In particular, the six largest U.S. Treasury securities dealers are subsidiaries of large U.S. bank holding companies (BHCs), which are required to maintain a supplementary leverage ratio (SLR) of at least 5 percent at the BHC level.
Discussion Paper
Use of the Federal Reserve's repo operations and changes in dealer balance sheets
Before the 2008 financial crisis, the Federal Reserve (Fed) regularly conducted repurchase agreements (repos) in a fairly modest size with primary dealers to adjust the supply of reserves in the banking system and to keep the federal funds rate at the target set by the FOMC. During the economic downturn that followed the financial crisis, the Fed engaged in large scale asset purchases in order to provide additional monetary accommodation, and those purchases significantly increased the supply of reserves and eliminated the need for the Fed to engage in repo operations to increase reserves in ...
Working Paper
Bank Interventions and Options-based Systemic Risk: Evidence from the Global and Euro-area Crisis
Using a novel dataset on central bank interventions to financial institutions, we examine the impact of capital injection announcements on systemic risk for the banking sector in the U.S. and the euro area between 2008 and 2013. We propose a new measure of options-based systemic risk called downside correlation risk premium (DCRP), which quantifies the compensation investors demand for being exposed to the risk of large correlated drops in bank stock prices. DCRP is calculated using options that provide a hedge against large drops in the price of a bank index and its individual components. We ...