Three essays in financial economics
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Abstract
This thesis consists of three chapters on financial economics.
The first chapter discusses anomalies in the US Treasury market, with a particular focus on the on-the-run premium. I explain this anomaly using a model in which primary dealers hold inventories of Treasuries. Because there is less inventory uncertainty for on-the-run Treasuries, they fail to settle less frequently, which I also observe in the data. They are preferred and trade at a premium. I use the model to analyse the effects of granting access to central bank facilities to non-banks active in the Treasury market.
The second chapter, co-authored with Ragnar Juelsrud, Plamen Nenov and Olav Syrstad, takes a broader macroeconomic view. It focuses on safe assets in general and not "just" on US government bonds. We examine the drivers of the cross-section of convenience yields. We identify an equilibrium object, which we call the "price of convenience", that measures the degree of liquidity risk sharing in the economy. Changes in the supply or transaction cost of a single safe asset affect aggregate liquidity and the returns on all assets through this price of convenience. As in the first chapter, we use data from the US Treasury market to test our theoretical predictions.
The third and final chapter, co-authored with Remo Taudien, is motivated by the rise of decentralised finance. It analyses how unsecured lending can be sustained despite anonymity. Anonymity is a preferred feature of many modern decentralised finance applications. We assume the availability of a public ledger, as a blockchain can provide. We show that when agents use pseudonyms to trade (to maintain anonymity), the reputation built up over time through non-defaulting behaviour with these pseudonyms can support the continuation of credit.
The first chapter discusses anomalies in the US Treasury market, with a particular focus on the on-the-run premium. I explain this anomaly using a model in which primary dealers hold inventories of Treasuries. Because there is less inventory uncertainty for on-the-run Treasuries, they fail to settle less frequently, which I also observe in the data. They are preferred and trade at a premium. I use the model to analyse the effects of granting access to central bank facilities to non-banks active in the Treasury market.
The second chapter, co-authored with Ragnar Juelsrud, Plamen Nenov and Olav Syrstad, takes a broader macroeconomic view. It focuses on safe assets in general and not "just" on US government bonds. We examine the drivers of the cross-section of convenience yields. We identify an equilibrium object, which we call the "price of convenience", that measures the degree of liquidity risk sharing in the economy. Changes in the supply or transaction cost of a single safe asset affect aggregate liquidity and the returns on all assets through this price of convenience. As in the first chapter, we use data from the US Treasury market to test our theoretical predictions.
The third and final chapter, co-authored with Remo Taudien, is motivated by the rise of decentralised finance. It analyses how unsecured lending can be sustained despite anonymity. Anonymity is a preferred feature of many modern decentralised finance applications. We assume the availability of a public ledger, as a blockchain can provide. We show that when agents use pseudonyms to trade (to maintain anonymity), the reputation built up over time through non-defaulting behaviour with these pseudonyms can support the continuation of credit.
Date of Publication
2024
Year of graduation
2024
Theses Type
dissertation
Language(s)
en
Author(s)
Schneider, Fabienne |
Faculty/Graduate School
Institute
Access(Rights)
open.access
Primary OA Publication
true