Essays in financial economics
Abstract/Contents
- Abstract
- This thesis investigates the role of financial intermediaries in asset markets from two complementary angles. In the first chapter, I study imperfect competition among intermediaries in a key funding market, and demonstrate the importance of intermediaries in monetary policy implementation. In the second chapter, I examine how the constraints faced by intermediaries affect prices across asset classes. This chapter is coauthored with Wenxin Du and Benjamin Hebert. In Chapter 1, I model and structurally estimate the equilibrium rates and volumes on the Triparty repo market to study how imperfect competition affects monetary policy implementation. Even in this systemically important market, where seemingly homogeneous repos trade, I document persistent rate differences paid by dealers. I therefore characterize the Triparty market as cash-lenders allocating their portfolios among differentiated dealers who set repo rates. I find that cash-lenders' aversion to concentrated portfolios gives dealers substantial market power: dealers borrow at rates that are 21 bps lower than their marginal benefit from intermediating borrowed funds, inserting a considerable wedge in wholesale funding rates. I show through counterfactual analyses the effect of the Federal Reserve's Reverse Repo Facility (RRP). Compared to its absence, the RRP raised the Triparty repo rate by 15 bps and tightened dealers' markdowns by 8 bps between 2014 and 2017; these effects were amplified by the Money Market Fund Reform. In Chapter 2, we explore the implication of intermediary constraints by noticing that violations of no-arbitrage conditions measure the shadow cost of intermediary constraints. Intermediary asset pricing and intertemporal hedging together imply that the risk of these constraints tightening is priced. We describe a ''forward CIP trading strategy'' that bets on CIP violations shrinking and show that its returns help identify the price of this risk. This strategy yields the highest returns for currency pairs associated with the carry trade. The strategy's risk contributes substantially to the volatility of the stochastic discount factor, is correlated with both other near-arbitrages and intermediary wealth measures, and appears to be priced consistently across various asset classes.
Description
| Type of resource | text |
|---|---|
| Form | electronic resource; remote; computer; online resource |
| Extent | 1 online resource. |
| Place | California |
| Place | [Stanford, California] |
| Publisher | [Stanford University] |
| Copyright date | 2022; ©2022 |
| Publication date | 2022; 2022 |
| Issuance | monographic |
| Language | English |
Creators/Contributors
| Author | Huber, Amy Wang |
|---|---|
| Degree supervisor | Krishnamurthy, Arvind |
| Thesis advisor | Krishnamurthy, Arvind |
| Thesis advisor | Duffie, Darrell |
| Thesis advisor | Hebert, Benjamin |
| Thesis advisor | Yurukoglu, Ali |
| Degree committee member | Duffie, Darrell |
| Degree committee member | Hebert, Benjamin |
| Degree committee member | Yurukoglu, Ali |
| Associated with | Stanford University, Graduate School of Business |
Subjects
| Genre | Theses |
|---|---|
| Genre | Text |
Bibliographic information
| Statement of responsibility | Amy Wang Huber. |
|---|---|
| Note | Submitted to the Graduate School of Business. |
| Thesis | Thesis Ph.D. Stanford University 2022. |
| Location | https://purl.stanford.edu/ds740zv4977 |
Access conditions
- Copyright
- © 2022 by Amy Wang Huber
- License
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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