My research focuses on identifying how different risks affect asset prices and how these risks are related to investors' trades. My work shows that the effect of market liquidity, liquidity risk (the covariance of asset market liquidity with returns) and private information are key to accurately interpreting asset price movements. A better understanding of the drivers of prices can in turn help investors and policymakers devise effective strategies.
Research Papers and Some Interesting Results
The Treasury yield curve split into two separate curves (liquid versus illiquid securities) in 2008-2009.
Market liquidity differentials between otherwise comparable Treasury securities can have a large effect on relative prices of these securities. Funding cost differentials play a small role when interest rates are low.
Visualizing limits to arbitrage with different holding periods illustrates that the precise timing of entering an arbitrage matters less the longer the horizon an investor has.
Levered investors and investors with shorter trading horizons are willing to pay up for very liquid securities.
Market liquidity was a far bigger driver of the relative price changes in euro-area money markets and government bonds than credit risk during the first half of the financial crisis.
The yield spread between two securities with identical cash flows but different prices is a tradable proxy for market liquidity that can be used to hedge against changes in market liquidity or to interpret changes in risk spreads.
Standard asset pricing models (such as CAPM or Fama-French) give the most precise measures of risk premia if they are estimated by using the prices of all individual assets rather than portfolios of assets (the larger the portfolio the more that estimation efficiency is lost).
Speculator trades reveal private information in equity futures markets. Hedgers trades do not.