The Savings of Corporate Giants with Olivier Darmouni. Review of Financial Studies 37(10), October 2024, 3024–3049. [pdf]
Data: corporategiants.webflow.io
Media coverage:
MarketWatch, March 2024, Apple, Microsoft, Alphabet and other corporate giants have huge bond holdings, and here’s why that’s a problem
CNBC, August 20, 2020: Some companies are running mini bond funds that appear as cash on balance sheets
CBS Press Release, August 6, 2020: Bigger than Banks: Re-Evaluating Superstar Firm Holdings Reveals Major Multinationals Are Sophisticated Financial Actors
Should Information be Sold Separately? Evidence from MiFID II with Yifeng Guo. Journal of Financial Economics 142(1), October 2021, 97-126. [pdf]
Winner of the Chazen Research Grant 2019 and Deming Doctoral Fellowship
Media coverage:
IR Magazine, July 10, 2020: How Mifid II has increased competition and improved research quality
Financial Times, May 25, 2020: UK and EU fund managers at odds over Mifid II revamp
Chazen Global Insights: Unbundling of Analyst Research
The Cross-Section of Risk and Returns with Kent Daniel, Simon Rottke, and Tano Santos. Review of Financial Studies, 33(5), May 2020, 1927-1979. [pdf]
4. The Corporate Supply of (Quasi) Safe Assets. R&R at The Journal of Finance (revised September 2023)
Abstract: Investors value safety in financial assets, including collateral and regulatory compliance. I present a model in which investors value safety not just in traditional safe assets like US Treasuries but also in corporate debt. Shareholders thus balance regular business with creating safe assets. Using the CDS-bond basis, I derive a measure of the corporate bond safety premium, which allows for testing the model. Results show that a high safety premium boosts debt issuance for safer firms. Interestingly, this debt predominantly funds equity payouts rather than investments, consistent with managers not incorporating the safety premium to assess real project valuations.
Winner of
AQR Top Finance Graduate Award at Copenhagen Business School;
Best Paper Award at Copenhagen Macro Days Conference ;
Chazen Research Grant 2020 and Arora-Naldi Fellowship 2021.
Media coverage:
Chazen Global Insights: When Corporations Issue Debt
5. Financially Sophisticated Firms with Kerry Siani (revised October 2024)
Data: Map bond issuers to Compustat parent company.
Abstract: Company capital structure extends far beyond the simple choice between debt and equity. In issuing publicly traded bonds, firms often employ complex entity structures, issuing diverse bond types with varying maturity, seniority, and covenants. In this paper, we document a significant heterogeneity in bond characteristics issued by firms by the same parent company that maps to heterogeneity in prices and investor composition. Using detailed portfolio allocation data, we find that firms, like financial intermediaries, engineer assets with cash flows that meet investors' demands. We show evidence that the complex bond issuance structure employed by firms serves a dual purpose: it helps complete the market while simultaneously reducing the costs of capital to the firm.
6. Learning About Convenience Yields from Holdings with Felix Corell and Melina Papoutsi (revised September 2024)
Abstract: The spread between corporate and sovereign bond yields cannot be explained by differences in default risk alone. Instead, there is a significant non-default component that has traditionally been associated with the "convenience'' of holding a particular asset. We use comprehensive portfolio holdings data from the euro area corporate bond market to shed light on the drivers of such convenience yields. We document significant variation in convenience yields across different investor group portfolios. Taking the business models of different sectors (banks, mutual funds, and insurance companies) into account, we conduct several regulatory and monetary policy event studies to map variation in convenience yields to specific service flows. We find that liquidity, regulatory capital requirements, and collateral pledgeability are all important determinants of convenience yields. Our results underscore the importance of asset-specific services in driving bond valuation and shaping monetary policy transmission.
7. Betting on Credit Betas with Tomas Nobrega (NEW! December 2024)
Abstract: Duration is an important driver of bond return volatility and, consequently, an important driver of market betas. In credit markets, we show that “betting against beta” (BAB) strategy closely resembles a betting against duration strategy. We introduce a new method to estimate conditional betas that more accurately capture the effect of time-varying duration. Our findings reveal that long-short portfolios sorted on duration produce negative alphas, consistent with Frazzini and Pedersen (2014) BAB. However, when controlling for duration, long-short portfolios sorted on beta generate positive alphas of a comparable magnitude. These results are robust to using Treasuries to hedge duration risk. A combined strategy of betting against duration and betting on betas yields a market-orthogonal Sharpe ratio of 1.1, which is almost four times the 0.31 duration hedged market Shape ratio. Leverage constraints alone cannot explain our results.
Short-Selling Restrictions and Returns: A Natural Experiment with Fernando Barbosa, Marco Bonomo and João de Melo. Revised February 2020
Winner of the Brazilian Econometric Society Best Paper Award 2015.
Abstract: We show that increases in stock loan fees have strong causal impact on stock prices. We identify these effects by exploiting exogenous variation in loan fees generated by a tax arbitrage opportunity that existed in Brazil from 1995-2014. The tax arbitrage involved differential tax treatment on dividend payments depending on investor's type. Our data set allows to distinguish between equity lending transactions motivated by tax-arbitrage from those with the purpose of short-selling the stock. Variation in loan fees on tax-motivated transactions were a source of repeated exogenous variation of borrowing fees in short-selling transactions.