The past couple of decades have seen a significant shift in assets from active to passive investment strategies. We examine the potential effects of this shift on financial stability through four different channels: (1) effects on investment funds’ liquidity transformation and redemption...

We measure the relative role of sovereign-dependence risk and balance sheet (credit) risk in euro area interbank market fragmentation from 2011 to 2015. We combine bank-to-bank loan data with detailed supervisory information on banks’ cross-border and cross-sector exposures. We study the...

A principal is uncertain of an agent's preferences and cannot provide monetary transfers. The principal, however, does control the discretion granted to the agent. In this paper, we provide a simple characterization of when it is optimal for the principal to screen by offering different terms of...

This paper studies whether U.S. public pension funds reach for yield by taking more investment risk in a low interest rate environment. To study funds' risk-taking behavior, we first present a simple theoretical model relating risk-taking to the level of risk-free rates, to their underfunding,...

This paper presents a quantitative model designed to understand the sensitivity of variable annuity (VA) contracts to market and actuarial assumptions and how these sensitivities make them a potentially important source of risk to insurance companies during times of stress. VA contracts often...

This paper measures the effect of monetary tightening in key advanced economies on net capital flows around the world. Measuring this effect is complicated by the fact that the domestic monetary policies of affected economies respond endogenously to the foreign tightening shock. Using a...

Factor models have been widely used in practice. However, an undesirable feature of a high dimensional factor model is that the model has too many parameters. An effective way to address this issue, proposed in a seminal work by Tsai and Tsay (2010), is to decompose the loadings matrix by a...

This paper documents a new type of cross-border bank lending channel using a novel dataset on the balance sheets of U.S. branches of foreign banks and their syndicated loans. We show that: (1) The U.S. branches of euro-area banks suffered a liquidity shock in the form of reduced access to large...

This paper combines a term structure model of credit default swaps (CDS) with weak-identification robust methods to jointly estimate the probability of default and the loss given default of the underlying firm. The model is not globally identified because it forgoes parametric time series...