Working Papers
Is Public Debt Arm's Length? Evidence from Corporate Bond Purchases of Life Insurance Companies
(with Ali Ozdagli)
Abstract: We show that bond financing is more similar to relationship lending than commonly believed and the borrower-lender relationship in this market may influence how economic shocks affect borrowing firms. In particular, we demonstrate the relationship between bond issuing corporations and life insurance companies, the largest institutional holders of corporate bonds, by showing that a life insurance company purchases a larger amount of a new bond issue if it already holds a larger share of that particular issuer's outstanding bonds. Using the drop in corporate bond and stock returns during COVID-19 as a natural experiment, we find that this familiarity-based relationship dampens the effect of economic shocks on the borrowers that rely more heavily on lending by life insurance companies.
Presentations (* indicates presentation by coauthor): NBER Insurance Working Group 2023* ; WFA 2021*
A Demand System Approach for Fixed Income
Abstract: I propose a new methodology to help disentangle the demand drivers of government and corporate bond risk premia. I model and estimate a demand system where the set of available assets has a strict factor structure and where investors have a benchmarking motive. The demand curve relates an investor’s portfolio factor loadings to the factors’ risk premia and the factor loadings of a benchmark portfolio. I estimate this demand system for institutional investors in the Treasury and corporate bond markets. I use the estimated demand curves, along with a market clearing condition, to study how investor composition affects equilibrium bond yields.
Presentations: MFS Workshop PhD Poster Session (May 2024)
Winner of Liew Fama-Miller Prize for best second year paper in Finance, University of Chicago Booth School of Business. This research was funded in part by the John and Serena Liew Fellowship Fund at the Fama-Miller Center for Research in Finance, University of Chicago Booth School of Business.