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Speech
Lessons from the financial crisis: remarks at The Economic Club of New York, New York City
Remarks at The Economic Club of New York, New York City.
Report
Did liquidity providers become liquidity seekers?
The misalignment between corporate bond and credit default swap (CDS) spreads (i.e., CDS-fbond basis) during the 2007-09 financial crisis is often attributed to corporate bond dealers shedding off their inventory, right when liquidity was scarce. This paper documents evidence against this widespread perception. In the months following Lehman?s collapse, dealers, including proprietary trading desks in investment banks, provided liquidity in response to the large selling by clients. Corporate bond inventory of dealers rose sharply as a result. Although providing liquidity, limits to arbitrage, ...
Working Paper
Dealer costs and customer choice
We introduce a model to explain how an increase in intermediation costs leads to structural changes in the corporate bond market. We state three facts on corporate bond markets after the Dodd-Frank act: (1) an increase in customer liquidity provision through prearranged matches, (2) a paradoxical decrease in measured illiquidity, and (3) an increase in the illiquidity component on the yield spread. Investors take longer to finish a trade and require higher illiquidity premium even though measured illiquidity decreased. We introduce a search and matching model which explains these facts. It ...
Speech
Transcript of Moderated Conversation at UC Berkeley Event, US Economy: 10 Years after the Crisis: November 27, 2017
Transcript of Moderated Conversation at UC Berkeley Event, US Economy: 10 Years after the Crisis: November 27, 2017.
Working Paper
Customer Liquidity Provision : Implications for Corporate Bond Transaction Costs
The convention in calculating trading costs in corporate bond markets is to assume that dealers provide liquidity to non-dealers (customers) and calculate average bid-ask spreads that customers pay dealers. We show that customers often provide liquidity in corporate bond markets, and thus, average bid-ask spreads underestimate trading costs that customers demanding liquidity pay. Compared with periods before the 2008 financial crisis, substantial amounts of liquidity provision have moved from the dealer sector to the non-dealer sector, consistent with decreased dealer risk capacity. Among ...
Speech
Transcript of Fireside Chat at Rutgers University—New Brunswick: November 29, 2017
Transcript of Fireside Chat at Rutgers University?New Brunswick: November 29, 2017.