December 17, 2024 / 12:15 p.m. - 01:15 p.m. / TC.4.03
Jules van Binsbergen (Wharton School of the University of Pennsylvania)
"Monetary Policy Wedges and the Long-term Liabilities of Households and Firms” (joint with Marco Grotteria)

Abstract: We examine the transmission of monetary policy shocks to the long-duration liabilities of households and firms using high-frequency variation in 10-year swap rates around FOMC announcements. We find that four weeks after the announcement mortgage rates move one-for-one with 10-year swap rates, leaving little explanatory power for mortgage concentration, bank market power, or credit risk. Variation in credit risk does materially affect monetary policy transmission to corporate bonds. Expected future short rates and term premia play a significant role in driving both mortgage rates and corporate bond yields, which explains the Federal Reserve’s increased focus on these quantities.

October 24, 2024 / 12:00 p.m. - 01:00 p.m. / EA.5.040
Tomy Lee (Central European University)
"China Walls" (joint with Daniel Nathan and Chaojun Wang)

Abstract: Conflicts of interest within banking conglomerates contributed to the 2008 financial crisis. Policymakers dramatically tightened internal information barriers-China Walls-within the banking conglomerates in response. We measure trade-relevant private information flows within affiliate and non-affiliate firm pairs to determine if today's China Walls are effectively enforced. Our approach compares firm pairs around exceptionally large trades, exploiting the pairs that are neither affiliates nor ever trade to strip away aggregate information shocks. We apply the approach to regulatory data on the foreign exchange market, in which the China Wall rules aim to separate dealers from their affiliate funds. We document islands of informational autarky within affiliate dealer-fund pairs surrounded by a sea of information sharing: (1) Dealers and affiliate funds never trade with each other. (2) The dealers do not leak information to affiliate funds, nor the funds to affiliate dealers. (3) Unaffiliated dealer-fund pairs that frequently trade with each other systemically share information, even around days when the pair does not trade. (4) Affiliate fund-to-fund pairs intensely share information, including the fund pairs whose dealers do not overlap. (5) The private information flows exhibit strong homophily. Firms specialized in a currency pair respond more to each other's information. Hedge funds respond vastly more to information from other hedge funds, and the non-hedge funds somewhat more to the other non-hedge funds. Our results reveal remarkable regulatory capacity to control information flows in democracies.

 

October 08, 2024 / 12:00 p.m. - 01:00 p.m. / D3.0.233
Merlin Bartel (University of Lichtenstein)
"Factor Chasing: How fast is International Capital?" (joint with Pedro Barroso and Sebastian Stöckl)

Abstract: We show that under global market frictions even highly specialized style mutual funds underreact to publicly available information. We first establish a distinctive pattern in international risk factor returns that we term ''Factor Chasing''. A factor performing better in a country than in others tends to continue outperforming in the following months. Strategies that chase single factor returns over the world yield highly positive returns that are not spanned by leading factor models. Considering the frequently documented positive feedback trading tendency of managers, factor chasing should be highly attractive to specialized style mutual funds. We confirm that managers trade on the signal, but with a considerable delay. Global specialized style mutual funds fail to time trades on simple long-only chasing strategies. We further show that even highly specialized fund managers are subject to commonly reported biases.