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Working Paper
Was there front running during the LTCM crisis
This paper uses a unique dataset of audit trail transactions to examine the trading behavior of market makers in the Treasury bond futures market when Long-Term Capital Management (LTCM) faced binding margin constraints in 1998. Although identities are concealed in the dataset, I find strong evidence that during the crisis market makers in the aggregate engaged in front running against customer orders from a particular clearing firm (coded "PI7") that closely match various features of LTCM's trades through Bear Stearns. That is, market makers traded on their own accounts in the same ...
Working Paper
Institutional Herding and Its Price Impact : Evidence from the Corporate Bond Market
Among growing concerns about potential financial stability risks posed by the asset management industry, herding has been considered as an important risk amplification channel. In this paper, we examine the extent to which institutional investors herd in their trading of U.S. corporate bonds and quantify the price impact of such herding behavior. We find that, relative to what is documented for the equity market, the level of institutional herding is much higher in the corporate bond market, particularly among speculative-grade bonds. In addition, mutual funds have become increasingly likely ...
Working Paper
International diversification at home and abroad
We analyze foreigners' and domestic institutional investors' holdings of U.S. equities and find common preferences for large firms and firms that are diversified internationally. The domestic preference for internationally diversified firms implies that investors might obtain substantial international diversification by investing at home. Using an international factor model, we show that exposure to foreign equity markets is indeed greater for domestic firms that are more diversified internationally, suggesting that at least some of the home-grown foreign exposure translates into ...
Discussion Paper
New Insights from N-CEN: Liquidity Management at Open-End Funds and Primary Market Concentration of ETFs
Structural vulnerabilities associated with open-end funds have received increasing attention among academics and regulators over the past few years. Despite the effort by policymakers to enhance the liquidity risk management practices at these funds, evaluating the availability, use and effectiveness of liquidity management tools continues to be a challenging task in assessing vulnerabilities in open-end funds, largely because comprehensive data on open-end funds' access to liquidity management tools remain scarce.
Discussion Paper
Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds
Net assets in open-end (non-money market) mutual funds (MFs) have increased notably over the past decades.
Working Paper
Has international financial co-movement changed? Emerging markets in the 2007-2009 financial crisis
Emerging market (EM) assets have historically been regarded as inherently risky and particularly vulnerable to international shocks that result in a general increase in investor risk perceptions. In this paper, we assess the ongoing relevance of this view by examining the linkages between EM and non-EM stock and bond markets in the past two decades, with a focus on how these relationships played out during the global financial crisis of 2007-2009. We evaluate how these linkages have evolved over the period 1992-2009, through statistical tests of whether the volatility of EM financial markets ...
Discussion Paper
Bank Lending to Private Credit: Size, Characteristics, and Financial Stability Implications
Private credit (or private debt) has emerged as one of the fastest-growing segments of nonbank financial intermediaries (NBFIs) over the past 15 years or so. Although there is no universal definition, private credit generally refers to direct loans made to mid-market businesses typically by non-bank vehicles such as private debt (PD) funds and Business Development Companies (BDCs) (Cai and Haque, 2024; Haque, Mayer, and Stefanescu, 2025). The asset class totaled $1.34 trillion in the U.S. (Exhibit 1) and nearly $2 trillion globally by 2024-Q2, and has grown roughly five times since 2009.
Working Paper
Sovereign CDS and bond pricing dynamics in emerging markets: does the cheapest-to-deliver option matter?
We examine the relationships between credit default swap (CDS) premiums and bond yield spreads for nine emerging market sovereign borrowers. We find that these two measures of credit risk deviate considerably in the short run, due to factors such as liquidity and contract specifications, but we estimate a stable long-term equilibrium relationship for most countries. In particular, CDS premiums tend to move more than one-for-one with yield spreads, which we show is broadly consistent with the presence of a significant "cheapest-to-deliver" (CTD) option. In addition, we find a variety of ...