Non-Standard Errors

in Journal of Finance (in press)

Signaling or Marketing? The Role of Discount Control Mechanisms

Scientific Conference (2019)

Signaling or Marketing? The Role of Discount Control Mechanisms

Scientific Conference (2018)

Where to hide in bad times: Or should one still diversify internationally?

Scientific Conference (2017)

It is well documented that correlation between international equity indices has trended upward for many years. This trend has called the concept of diversification into question. In this paper we argue ... [more ▼]

It is well documented that correlation between international equity indices has trended upward for many years. This trend has called the concept of diversification into question. In this paper we argue that this argument is informed mainly by restrictions in modeling choices or portfolio solutions. We examine the fundamental question of whether there is economically significant gain of international exposures in the investment portfolio after capturing stylized dynamics of the data for short- and long-term return horizons and after accounting for intertemporal hedging. The answer is yes and the gain is substantial over a long horizon and for a reasonable range of international equity indices. First, a diversifying investor benefits from periods of low correlations of higher moments and time variations in return co-movement measures. Second, the cost of home bias comes primarily from not hedging changes in correlation and tail risks present in data, and cannot be solely explained by mean-variance considerations. [less ▲]

The evolving beta-liquidity relationship of hedge funds

in Journal of Empirical Finance (2017), 44

Hedge funds are known to have liquidity-timing capability, but this might be conditional on aggregate market conditions. To test this, we analyze changes in the relation between hedge funds' stock market ... [more ▼]

Hedge funds are known to have liquidity-timing capability, but this might be conditional on aggregate market conditions. To test this, we analyze changes in the relation between hedge funds' stock market exposure and aggregate stock market liquidity. Employing an optimal changepoint approach, we find that equity-oriented hedge funds display a significant shift in liquidity-timing behavior after the major market microstructure changes in the year 2000. The shift is from a negative relation between market beta and liquidity towards a positive relation. We rule out a mechanistic explanation of the results by computing the returns to several familiar risk arbitrage strategies, finding in them no evidence of a similar shift in liquidity timing. [less ▲]

The European Sovereign Debt Crisis: What Have We Learned?

in Journal of Empirical Finance (2016), 38(-), 363-373

This paper sets the background for the Special Issue of the Journal of Empirical Finance on the European Sovereign Debt Crisis. It identifies the channel through which risks in the financial industry ... [more ▼]

This paper sets the background for the Special Issue of the Journal of Empirical Finance on the European Sovereign Debt Crisis. It identifies the channel through which risks in the financial industry leaked into the public sector. It discusses the role of the bank rescues in igniting the sovereign debt crisis and reviews approaches to detect early warning signals to anticipate the buildup of crises. It concludes with a discussion of potential implications of sovereign distress for financial markets. [less ▲]

Where to Hide in Bad Times: Or Should One Still Diversify Internationally?

Scientific Conference (2016)

Dynamic Hedging and Extreme Asset Co-movements

in Review of Financial Studies (2015), 28(3), 743-790

Hedge Fund Innovation

Scientific Conference (2014, December)

The Evolving Beta-Liquidity Relationship of Hedge Funds

E-print/Working paper (2014)

Using an optimal changepoint approach, we find a structural change in the relation between hedge funds’ stock market exposure and aggregate stock market liquidity that takes place in the period 2000 to ... [more ▼]

Using an optimal changepoint approach, we find a structural change in the relation between hedge funds’ stock market exposure and aggregate stock market liquidity that takes place in the period 2000 to 2002. Before the structural break, market betas have no relation to liquidity and only a few style categories of hedge funds show increased market presence when liquidity is low. After the break, the relationship is inverted, pointing towards an increased liquidity timing ability of hedge funds, as users of liquidity. We relate our findings to best execution rules and decimalization in the US stock market that were introduced in that period and impacted aggregate liquidity conditions. Furthermore, the returns to a momentum strategy display a similar structural break and momentum-loading funds constitute a sizeable proportion of hedge funds that manifest a distinct beta-liquidity evolution with a structural break in that period. [less ▲]