Search Results
Working Paper
Fed Repo Operations and Dealer Intermediation
We examine how primary dealers utilized repo operations conducted by the Federal Reserve from September 2019 until May 2020 and how usage affected dealer borrowing and lending. Using daily dealer-level supervisory data, we find that during normal market conditions, dealers primarily used Fed repo to expand their total repo borrowing and on-lent much of this funding to a broad variety of counterparties. However, during market stress in March 2020, dealers used Fed repo as a substitute for funding from other counterparties and focused their on-lending to affiliated counterparties. Moreover, ...
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 ...
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
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
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 ...
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.
Working Paper
Risk-averse Dealers in a Risk-free Market - The Role of Trading Desk Risk Limits
Self-imposed risk limits effectively limit dealers' appetite for risks and their capacity to intermediate in Treasury markets in times of market stress. Using granular and high frequency regulatory data on US dealers' Treasury securities trading desk positions and desk-level Value-at-Risk limits, we show that dealers are more inclined to reduce their positions as they get closer to their internal risk limit, consistent with such limit being meaningful and costly for traders to breach. Dealers actively manage their inventories away from their limits by selling longer-term securities and ...