I am an economist at the Board of Governors of the Federal Reserve System. My research interests include asset pricing, financial intermediation, and macrofinance.
I received my Ph.D. in financial economics at the Yale School of Management. Previously, I worked at the U.S. Treasury’s Office of Financial Research and the global economics research group at Goldman Sachs in New York.
The contents of this website do not necessarily reflect the views of the Federal Reserve Board or its staff.
with Gary B. Gorton and Chase P. Ross, Revise & Resubmit, Journal of Finance
Abstract · PDF (latest) · SSRN · NBER WP #29710
It is hard for private agents to produce money that circulates at par with no questions asked about its backing. The last circulating privately-produced money in the U.S. existed before the Civil War when thousands of private banknotes circulated. After that, the U.S. government taxed them out of existence in favor of money backed by U.S. Treasury bonds. The question of privately-produced money has arisen again in the form of stablecoins, digital assets purportedly backed one-for-one with collateral. Stablecoins are currently used to facilitate crypto trading, but could stablecoins eventually circulate as a hand-to-hand currency? To address this question, we first study pre-Civil War bank notes to determine what forces pushed these moneys from a negative convenience yield to a positive convenience yield. We then take these results and ask whether the same forces affect stablecoins, pushing them toward positive convenience yields.
Leverage and Stablecoin Pegs
with Gary B. Gorton, Elizabeth C. Klee, Chase P. Ross, and Alexandros Vardoulakis
Abstract · SSRN · NBER WP #30796
Money is debt that circulates with no questions asked. Stablecoins are a new form of private money that circulate with many questions asked. We show how stablecoins can maintain a constant price even though they face run risk and pay no interest. Stablecoin holders are indirectly compensated for stablecoin run risk because they can lend the coins to levered traders. When speculative demand is strong, levered traders are willing to pay a premium to borrow stablecoins. Therefore, the stablecoin can support a $1 peg even with higher levels of run risk.
Government Risk Distortions
Abstract · PDF
Market distortions caused by intermediaries and the government lead to persistent asset pricing implications because there is a lack of diversification of intermediary and government risk. In Japan, zombie firms borrow at below-market rates. Intermediary risk prices zombies but not overall Japanese equities. Zombies differ from other bank-dependent firms because zombies rely on the government to continue allowing forbearance. This is reflected in the pricing: a government risk factor prices only zombies, and a Japanese intermediary factor prices zombies because intermediary risk covaries with government risk. Government risk exposure also determines the returns of U.S. firms with large government dependence.
Cash-Hedged Stock Returns
with Landon J. Ross and Chase P. Ross
2023 SWFA best paper award winner in investments
2022 FMA best paper semifinalist in investments
Abstract · PDF · SSRN · FEDS WP #22–055 · OFR WP #22–03
Corporate cash piles vary across companies and over time. A firm's cash holding is an implicit position in a low-return asset that is correlated across firms. Cash generates variation in beta estimates. We show how investors can hedge out the cash on firms' balance sheets when making portfolio choices. We decompose stock betas into components that depend on the firm's cash holding, return on cash, and cash-hedged return. Common asset pricing premia — size, value, and momentum — have large implicit cash positions. Portfolios of cash-hedged premia often have higher Sharpe ratios because firms' cash returns are correlated.
Zombie Asset Pricing
Abstract · PDF
Persistent credit distortions warp equity returns. Japan’s low momentum premium arises from banks providing subsided credit to “zombie firms.” Controlling for zombies revives the momentum effect in Japan. Zombie-adjusted momentum doubles the unadjusted momentum Sharpe ratio, commands a positive price of risk, and is unspanned by other factors. Value, too, conforms closer to international results. Zombies rely on their banking relationships, and zombie losers’ outsized bank betas push down momentum. Syndicated loan data confirm that companies with forbearance-inclined bank lenders drive low momentum.
Works in Progress
Quantities and Covered-Interest Parity
with Tobias J. Moskowitz, Chase P. Ross, and Kaushik Vasudevan
Studies of intermediated arbitrage argue that bank balance sheets are an important consideration, yet little evidence exists on banks' positioning in this context. Using confidential supervisory data — covering $25 trillion in daily notional exposures — we examine banks' positions in connection with Covered-Interest Parity arbitrage. We uncover three novel forces driving CIP deviations: 1) foreign safe asset scarcity, 2) market power and segmentation of banks specializing in different markets, and 3) concentration of demand. These forces explain a striking, yet often ignored, feature of CIP deviations: substantial cross-sectional variation of spreads in both sign and magnitude. Our findings highlight the importance of specialized supply and demand forces that induce risk in ostensibly riskless arbitrage.
with Gary B. Gorton and Chase P. Ross
Pricing With Almost-Arbitrages
with Chase P. Ross
Non-centrally Cleared Bilateral Repo Link
with Samuel J. Hempel, R. Jay Kahn, and Vy Nguyen
August 24, 2022, Office of Financial Research
Forecasting the Economy During COVID-19 Link · PDF
with Chase P. Ross
May 26, 2020, Yale Program on Financial Stability
Fed Actions Support Agency Mortgage REITs Link · PDF
with Chase P. Ross
April 22, 2020, Yale Program on Financial Stability
Flight from Maturity During the Coronavirus Crisis Link · PDF
with Chase P. Ross, Gary B. Gorton, and Andrew Metrick
March 26, 2020, Yale Program on Financial Stability
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