Research interests : financial intermediation, banking, risk management, repo, household finance.
Centralized clearing is becoming widespread, making Central Counterparties (CCPs) systemically important. Using a novel transaction-level dataset of centrally cleared and over-the-counter (OTC) repo, I show that high CCP haircuts drive low-risk borrowers away from the centrally cleared to the OTC market. This happens because an increase in CCP haircuts applies to all participants uniformly, but safer borrowers are likelier to switch to borrowing OTC. This effect is stronger among collateral-constrained borrowers. While conventional wisdom holds that high haircuts enhance CCP stability, I demonstrate that they can induce adverse selection in the CCP market, potentially undermining this stability instead.
I study the effect of collateral quality on repo rates and haircuts. I build a model of repo, where value-at-risk and expected shortfall arise endogenously as sufficient statistics of the collateral quality, that is, its return distribution. Although a higher expected shortfall increases both haircuts and repo rates, a higher value-at-risk leads to a larger haircut and a lower rate. I confirm the model’s predictions using novel over-the-counter deal-level repo data from Moscow Exchange. Additionally, I empirically document that borrowers’ liquidity needs (and not the borrowers’ credit risk) drive the interchangeability between repo rates and haircuts, consistent with the model.
We study whether investors perceive responsible investments (i.e., investments in assets with environmental or social benefits) as a luxury good. We exploit windfall wealth due to inheritances from parental deaths to obtain plausibly exogenous variation in wealth. We show that windfall wealth increases likelihood of holding responsible mutual funds and green stocks. Our findings indicate that both supply factors (e.g., bank advice) and demand factors (e.g., preferences) play a role in shaping allocations to responsible investments. Notably, inheritors with a history of charitable donations exhibit a stronger response, which emphasizes the influence of a 'warm glow' effect on portfolio formation.
Are investors’ preferences for responsible investing affected by their idiosyncratic personal experiences? Using a comprehensive dataset for hospital visits and the information on portfolio holdings by retail investors in Denmark, we show that when an investor’s child is diagnosed with a respiratory disease, the investor decreases (increases) portfolio weights of “brown” (“green”) stocks but does not alter their holdings of ESG funds. Consistent with parents attributing respiratory diseases to air pollution, we find no effects for non-respiratory diseases. The results are stronger for more severe diseases and are entirely driven by parents who live with their children.
We study information pricing in a laboratory experiment where subjects predict the next observation of a random walk process. At each step they can buy a signal that may be useful for making predictions. Participants know the parameters of the process, but not the informativeness of the signal. We find that subjects correctly price precise and imprecise signals, but overprice signals of average precision. This pattern persists even when the true precision level is revealed. We show that when participants do not buy the signal, they display optimism and use momentum and reversal strategies in forecasts. Although buying the signals spares them from these biases, relatively more biased participants do not value the signals higher than their peers.