Knowledge that Transforms

This study examines the relationship between corporate asset growth rates and bond performance, uncovering a strong inverse relationship between the two. Higher asset growth increases asset value, potentially offering greater protection to bondholders and leading to lower bond returns. By decomposing bond returns into initial yields and subsequent yield changes, our analysis supports this expectation and suggests that investors may overreact to asset growth, as investor sentiment significantly influences bond yields in response to it. Finally, drawing on insights from leverage-based Q-theory, we examine how stock returns respond to asset growth, accounting for its effect on bond performance.

In this paper, we analyze the key drivers of bond covenant prices by employing a novel measurement approach based on secondary market data. We find that covenant prices vary significantly over time and are associated with market-wide credit risk, volatility, and macroeconomic variables. Apart from the time-series dynamics, there is also significant variation across bond and firm characteristics. In particular, covenant prices increase with the riskiness of bonds and are higher for firms that have more growth options, more tangible assets, and are smaller. Furthermore, we document a positive correlation between the prices of covenants and their subsequent inclusion rates.

We propose a new private information measure based on a model of strategic trade optimization in the cross section of securities. Investors receive liquidity and private information shocks and optimize trading across securities, accounting for price impact (Kyle’s λ). The model yields a simple private information measure: λ×OIB (order imbalance). Intuitively, order imbalance is more likely to be information-driven when trading is expensive. We validate our measure by showing that it is greater for smaller firms with higher analyst dispersion, peaks with insider trades, helps explain return reversals, predicts return volatility, and increases before M&A announcements and after analyst coverage terminations.

This paper examines global sources of short sellers’ informational advantage by analyzing their trading around public news releases in 38 countries. I find that shorts on negative news have stronger predictive power than nonnews shorts, but only in countries with high-quality public information, more news per stock, and higher illiquidity. These results indicate that some country-level factors discourage short sellers from trading on public information. Short sellers’ informational advantage in most countries seems to arise from their access to private information, as evidenced by their ability to anticipate future negative news and their trading in unison with insiders.

Miners of proof-of-work networks like Bitcoin tend to gravitate towards regions with cheap energy. We analyze risks associated with this geographical centralization by exploiting a local electricity supply shock. Compared to a control group consisting of an energy-efficient proof-of-stake cryptocurrency, the blockchain’s capacity for processing transactions decreases while transaction fees increase substantially. The increased settlement latency on the blockchain also reduces secondary market quality as seen in higher exchange rate volatility, lower liquidity, and larger price differences between exchanges. Overall, our results suggest that geographical centralization poses short-lived but potentially severe system-wide risks to proof-of-work networks.

This study examines why firms’ access to finance differs across countries and assesses the extent to which democracy and financial liberalisation account for these variations. Using political economy and liberalisation theories as a foundation, we analyse a comprehensive dataset of over 110,000 firms across 112 economies between 2006 and 2021. Although previous research identifies firm-level and macroeconomic sources of financial frictions, evidence on the institutional drivers of cross-country financial access remains limited. Our findings show that democracy and financial liberalisation, when considered independently, are associated with reduced access to finance. However, when both conditions coexist, they ease financing barriers and enhance access to finance. These results remain consistent across multiple robustness tests, including alternative model specifications, endogeneity corrections, and various measures of institutional quality and financial openness. Overall, the study highlights that neither democracy nor liberalisation alone is sufficient to enhance access to credit. Instead, simultaneous institutional strengthening and financial market access are necessary to ease financing barriers. This has important policy implications, particularly for emerging and developing economies seeking to expand firm-level access to capital and stimulate economic growth.

Wealth Management Products (WMPs) have become a major source of bank funding over the past decade. Using a unique WMP transactions dataset from China covering 99,893 transactions during 2010-2020, this study examines whether greater reliance on WMPs as a type of funding innovation increases bank systemic risk. We find that higher WMP dependence significantly elevates systemic risk, with the effects concentrated among smaller banks. Exploiting the 2018 Asset Management Regulation as an exogenous shock, we establish causality using a difference-in-differences approach. Our channel analysis shows that maturity mismatch amplifies WMP-related systemic risk, while higher WMP yields further increase fragility through funding cost pressures. Overall, these results call for a regulatory approach that moves beyond aggregate balance-sheet metrics and instead targets funding composition, maturity structure, and pricing behaviour-dimensions in which WMPs materially increase systemic vulnerability.

I investigate how the Tax Reform Act of 1986 (TRA) reshaped household mobility by preserving mortgage interest deductibility while abolishing other personal loan deductions. Using PSID panel data and an instrumental variables framework, I show that the TRA induced mortgage holders to expand borrowing by $7600, reducing home equity by 8.2 percentage points and lowering mobility by 3.8 percentage points. Placebo tests reveal renters exhibited no mobility changes, validating a mortgage-specific fiscal channel. The mobility constraint operated primarily among high-income households (where tax incentives were strongest), within-state moves (local housing adjustments), and liquidity-constrained borrowers. Simultaneously, an asymmetric capital gains tax treatment prevented even asset-rich households from rebalancing portfolios to offset equity losses. The findings reveal a tax-driven leverage mechanism: fiscal policies subsidizing housing debt immobilize households by eroding equity buffers and preventing portfolio optimization, impeding labor-market adjustment even in the absence of negative equity.