Publications & Working Papers

Abstract: This paper explores the influence of increasing ownership in fixed-income ETFs and mutual funds on liquidity commonality among corporate bonds. The unpredictable nature of liquidity demands in these funds may lead to correlated trading in underlying illiquid bonds. The study finds a positive and significant relationship between ETF ownership and liquidity commonality in investment-grade corporate bonds. In contrast, mutual fund or index fund ownership does not exhibit a similar effect, a result that differentiates corporate bonds from equities. This distinction from equities is attributed to different liquidity management strategies employed by equity and corporate bond mutual funds. The paper also highlights factors contributing to the varying impacts of ETFs and mutual funds on corporate bonds, including correlated trading due to fund flows, differences in investor clienteles, and the role of ETF arbitrage activities.

Columns on the paper:
Credit Liquidity Risk Is Rising Thanks to Boom in Bond ETFs, Bloomberg
Rapid Growth of Bond ETFs Could Fuel Credit Liquidity Risks, ETF Trends
How 'Democratization' Of The Bond Market Killed Liquidity, Zero Hedge
Bond ETF explosion fuels liquidity risks, ETF Stream
Media mentions:
ETF Liquidity Mirage (The Weekly Fix), Bloomberg
What happens when the lights go out? An analysis of ETFs when liquidity vanishes, ETF Stream

Presentations: SFI Research Days (Virtual, 2020), AEFIN PhD Mentoring Days (Virtual, 2020), USI Lugano Brown Bag Seminar (2020), Bilkent University (2021), Sabanci University (2021), Tulane University (2021), WHU Otto Beisheim School of Management (2021), Paris Financial Management Conference (2022)

-  with Francesco Franzoni and Alberto Plazzi

Review of Finance, 2021, Vol 25:2, 485–517 

Abstract: The paper studies liquidity provision by institutional investors using trade-level data. We find that hedge fund trades are a more important predictor of stock-level liquidity than mutual fund trades. However, hedge funds' liquidity provision is more exposed to financial conditions than that of mutual funds. Hedge funds that are more constrained in terms of leverage, age, asset illiquidity, and past performance exhibit a stronger shift towards liquidity consumption when funding condition tighten. Stocks with more exposure to constrained liquidity providing hedge funds suffered more during the financial crisis.

RoF Digest
Online Appendix

Abstract: This paper empirically investigates the role of long-term institutional investors in information diffusion from the credit market to equities. The results show that a 1-percent increase in CDS slope is associated with a 0.175 percentage point increase in the sales of the long-term institutions. However, changes in CDS slope do not significantly predict short-term institutional trading. My findings provide evidence that a low CDS slope predicts improved creditworthiness, which in turn, is transmitted to the equity market through the trading of long-term institutions.

Presentations:  AFA Ph.D. Student Poster Session (San Diego, 2020), XXVI Finance Forum (Santander, 2018), Spanish Finance Association 1st PhD Consortium (Santander, 2018), 35th Annual Conference of the French Finance Association (AFFI) (Paris, 2018), SFI Research Days (Gerzensee, 2017)