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Discussion Paper
The U.S. Syndicated Term Loan Market: Who Holds What and When?
This note looks carefully at the transition of ownership of syndicated term loans immediately after a deal is launched based on the Shared National Credit data.
Working Paper
Credit Supply and Hedge Fund Performance: Evidence from Prime Broker Surveys
Constraints on the supply of credit by prime brokers affect hedge funds' leverage and performance. Using dealer surveys and hedge fund regulatory filings, we identify individual funds' credit supply from the availability of credit under agreements currently in place between a hedge fund and its prime brokers. We find that hedge funds connected to prime brokers that make more credit available to their hedge fund clients increase their borrowing and generate higher returns and alphas. These effects are more pronounced among hedge funds that rely on a small number of prime brokers, and those ...
Working Paper
CEO pay and the market for CEOs
Competitive sorting models of the CEO labor market (e.g., Edmans, Gabaix and Landier (2009)) predict that differences in CEO productive abilities, or "talent", should be an important determinant of CEO pay. However, measuring CEO talent empirically represents a major challenge. In this paper, we document reliable evidence of pay for CEO credentials and argue that the evidence is consistent with models of the CEO labor market. Our main finding is that boards' compensation decisions reward several reputational, career, and educational credentials of CEOs, with newly-appointed CEOs earning a 5 ...
Conference Paper
Liquidity, runs, and security design: lessons from the collapse of the auction rate municipal bond market
In this paper, we use the recent collapse of the ARS market as a case study on important issues regarding fragility of financial innovations and systemic risks. We find strong evidence of investor runs for liquidity, partly caused by a self-fulfilling panic. In addition, coordination failures triggered by an unexpected first mover led all major broker-dealers to simultaneously withdraw their liquidity support. We also find that the likelihood of auction failures and ARS reset rates depend significantly on both the rule and the level of maximum auction rates; that, as predicted by auction ...
Working Paper
Risk-averse Dealers in a Risk-free Market - The Role of Trading Desk Risk Limits
Self-imposed risk limits effectively limit dealers' appetite for risks and their capacity to intermediate in Treasury markets in times of market stress. Using granular and high frequency regulatory data on US dealers' Treasury securities trading desk positions and desk-level Value-at-Risk limits, we show that dealers are more inclined to reduce their positions as they get closer to their internal risk limit, consistent with such limit being meaningful and costly for traders to breach. Dealers actively manage their inventories away from their limits by selling longer-term securities and ...
Working Paper
Dealer Networks
Dealers in over-the-counter securities form networks to mitigate search frictions. The audit trail for municipal bonds shows the dealer network has a core-periphery structure. Central dealers are more efficient at matching buyers and sellers than peripheral dealers, which shortens intermediation chains and speeds up trading. Investors face a tradeoff between execution speed and cost. Central dealers provide immediacy by pre-arranging fewer trades and holding larger inventory. However, trading costs increase strongly with dealer centrality. Investors with strong liquidity need trade with ...