Three FRIC-related articles forthcoming in top journals
The FRIC Center and the Department of Finance are proud to announce that no less than 3 articles are now forthcoming in leading journals within finance: The Journal of Financial Economics and The Review of Financial Studies.
- PhD student Mads Vestergaard Jensen and Professor Lasse Heje Pedersen’s article Early Option Exercise: Never Say Never is forthcoming in The Journal of Financial Economics. The article establishes new theory and evidence overturning Merton's rule that one should never exercise a call option early or convert a convertible bond.
- Assistant professor Gyuri Venter’s article Mortgage Risk and the Yield Curve with co-authors Aytek Malkhozov, BIS, Philippe Mueller, LSE, and Andrea Vedolin, LSE is forthcoming in The Review of Financial Studies. The article studies the effect of hedging mortgage-backed securities (MBS) on US Treasury prices. Changes to the aggregate value of outstanding MBS are large and frequent as most fixed-rate mortgages, a major segment of US fixed income markets, can be prepaid and refinanced even after small movements in interest rates. The article shows that measures of this MBS risk can help explain the returns and volatilities of both nominal and real bonds.
- PhD student Davide Tomio’s article Sovereign credit risk, liquidity, and ECB intervention: Deus ex machina? with co-authors Loriana Pelizzon, Marti G. Subrahmanyam and Jun Uno is forthcoming in The Journal of Financial Economics. The authors examine the relation between credit risk and liquidity in the Italian sovereign bond market during the Euro-zone crisis and the subsequent ECB interventions, finding that a change in credit risk commands a similar change in the liquidity of the market. The Long-Term Refinancing Operations of the ECB weakened the sensitivity of market makers' liquidity provision to credit risk, highlighting the importance of funding liquidity as a determinant of market liquidity.
“It is always a great pleasure to see FRIC research featured in top journals, but what makes this news even better is to see that junior faculty members have achieved this so early in their careers,” says David Lando, Center Director of the FRIC Center for Financial Frictions.