Working Papers

Abstract: We identify a novel and common exogenous demand shock caused by passive funds in the corporate bond market. Specifically, passive fund demand for corporate bonds displays discontinuity around the maturity cutoffs separating long-term, intermediate-term, and short-term bonds. Passive funds' demand increases significantly upon a bond's crossing of 10-, 5-, and 3-year time-to-maturity cutoffs. We develop a novel identification strategy to study the impact of passive fund demand in the corporate bond market. First, we find that these non-fundamental demand shifts lead to a significant and lasting decrease in yield spreads, as well as persistent liquidity improvements. Second, passive fund demand shocks spill over to the primary market, causing lower issuing yield spreads, active new bond issuance, and higher total bond outstanding. Furthermore, firms reduce bank debt after the positive passive fund demand shock, suggesting that borrowers substitute cheap bond financing for bank debt in response to the elevated passive fund demand in the bond market.

Presentations: AFA Annual Meeting (2024),  SWFA Annual Meeting (2024), CEPR Paris Symposium (2023), Chicago Booth Asset Pricing Conference (2023), CEPR Asset Pricing Meeting Gerzensee (2023), University of Hong Kong (2023), HK Fixed Income and Institutions Research Symposium (2023), Nanyang Technological University (2023), National University of Singapore (2023), SFI Research Days (2023), Chicago Fed Workshop on Non-Bank Financial Institutions (2023), MFA Annual Meeting (2023),LBS Trans-Atlantic Doctoral Conference (2023),  Sydney Banking and Financial Stability Conference (2023), USC Finance PhD Miniconference (2022)

Abstract: We document a statistically and economically significant earnings announcement premium—the tendency of individual stocks to earn higher returns during the announcement weeks—for the largest U.S. stocks over the 2004-2022 period. To examine the systematic risk explanation behind the premium, we propose a link between the premium magnitude and the market-wide spillovers from earnings announcements. We leverage the S&P500 index futures data and use narrow intraday and overnight windows to isolate such spillovers. We find that earnings announcements of individual large firms represent an economically significant source of market-wide news, on par with macroeconomic releases. The ability to generate a spillover is a persistent stock characteristic that is associated with the firm’s size and industry. Firms that generate the highest market-wide spillovers earn the highest announcement premiums. Combined, our findings provide direct evidence supporting the systematic risk explanation for the earnings announcement premium.

Presentations: Chicago Booth (2023), USC Accounting Brownbag (2023), Hong Kong University of Science and Technology (2023), CUHK Accounting Conference (2023), USC Finance Brownbag (2023), FARS Midyear Meeting (2023), Rotman Accounting Conference (2022), Baruch College Seminar (2022), Derivative Markets Conference (2022), Yale SOM Accounting Conference (2021)

[3] Borrowing Costs and Market Immediacy: Evidence from Private Loan Index Constituency (Nov 2023)

with AJ Chen, Matthew Phillips, and Regina Wittenberg-Moerman

Work in Progress

[4] Monetary Policy Global Spillover and Sovereign Debt Rollover Risk

with Alexandre Jeanneret and Zhao Zhang

[5] Global Uncertainty and Variance Risk Premiums

with Geert Bekaert, Marie Hoerova, and Nancy Xu