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Journal Article

When Everyone Runs for the Exit

The severe consequences for the global economy brought about by the 2008 liquidity crisis highlight the importance of liquidity risk.

Working Paper

Measuring Systemic Risk

We present a simple model of systemic risk and show how each financial institution’s contribution to systemic risk can be measured and priced—its propensity to be undercapitalized when the system as a whole is undercapitalized, which increases in its leverage, volatility, correlation, and tail-dependence.

Journal Article

Demand-Based Option Pricing

Index and equity options are notoriously difficult to price.

Working Paper

Embedded Leverage

Embedded leverage—the amount of market exposure per unit of committed capital—has become an important feature of financial instruments. We study embedded leverage in equity options, index options and ETFs, and how it affects the required returns.

Journal Article

Size Matters, If You Control Your Junk

When it comes to equity investing, size matters—and in a bigger way than once thought—but only when controlling for junk. We examine seven challenges that have been hurled at the size effect and dismantle each one by controlling for a firm's quality.

Journal Article

How Sovereign Is Sovereign Credit Risk?

Is sovereign credit risk primarily a country-specific type of risk, or is it driven by global macroeconomic forces external to the country? Understanding the nature of sovereign credit risk is of key importance given the large and rapidly increasing size of the sovereign debt markets.

Working Paper

Liquidity and Risk Management

This paper provides a model of the interaction between risk-management practices and market liquidity. We find that a feedback effect can arise: Tighter risk management leads to market illiquidity, which then further tightens risk management.

Working Paper

Deep Value

We examine the efficacy of a hypothetical deep value strategy—where the valuation spread between cheap and expensive securities is wide relative to its history—across global asset classes and also provide new evidence on competing theories for the value premium.

Working Paper

Two Monetary Tools: Interest Rates and Haircuts

What happens when financial institutions, which play a key role as credit providers in the economy, become financially constrained themselves? This paper studies the ramifications during a liquidity crisis.

Journal Article

Valuation in Over-the-Counter Markets

We document the impact on asset prices of search-and-bargaining frictions in over-the-counter markets.