Working Papers

This figure plots the impact of flow-induced selling pressure on loan and high yield bond returns. Loans (high yield bonds) are designated as par build eligible if they are priced between 87.5 (inclusive) and 95 (exclusive) percent of face value, and par build ineligible if between 80 (inclusive) and 87.5 (exclusive). 

Revise & Resubmit at the Review of Financial Studies

with Christopher James, Tao Li, & Jing Lu

Invited to present at: AFA, CICF, FIFI, FIRS, FMA (Semi-Finalist), FMCG, FSB-IOSCO, NBER SI, OCC Symposium, Tulane, U of Florida, U of Utah, UT Dallas Finance Conference


There are two major institutional investors in the syndicated loan market: collateralized loan obligations (CLOs) and loan mutual funds. CLOs are closed-end funds while loan funds are openend funds that issue claims that are redeemable on demand. In this paper, we examine whether CLOs provide arbitrage capital that contributes to the resilience of loan funds. We find that CLOs act as shock absorbers, providing liquidity through par building trades when loan funds experience large outflows. However, CLO-provided liquidity is limited to par build eligible loans, leading to potential flow-induced fire sales among par ineligible loans.

This figure presents quarterly estimates of the difference between loan spreads on Cov-Heavy and Cov-Lite institutional term loans. Each bar in the figure displays the coefficient estimate on a Cov-Lite indicator variable from a quarterly cross-sectional regression in which the loan spread (in bps) is the dependent variable. 

Accepted for Publication at the Journal of Financial and Quantitative Analysis

with Dominique Badoer & Christopher James

Invited to present at: Copenhagen Business School, FMA, U of Colorado Boulder, Australian National University


Reputational capital is a frequently cited attribute of private equity transactions. In this paper we construct a simple model to illustrate the relationship between reputational capital, covenants and loan spreads in the leveraged loan market. Our model predicts that reliance on reputational capital varies inversely with a sponsor’s past loan performance and the efficiency of the enforcement formal contracts terms. Our model also predicts that for sponsored deals, spreads will be lower on Cov-Lite loans than loans with maintenance covenants. Using a large sample of leveraged loans originated between 2005 and 2018, we find evidence consistent with these predictions.

This figure presents interest rate sensitivity for portfolios of bank stocks and the Fama-French market portfolio (Market) in high- and low-rate environments. The figure plots the coefficients from regressions of these industry and market returns on the change in two-year Treasury yield over a one-day window around FOMC meetings. High-rate (low-rate) environment refers to periods when the effective Federal Funds rate is 2% or above (below 2%). Banking refers to the Fama-French bank portfolio while VW Bank and EW Bank refer to valueweighted and equal-weighted returns of bank stocks in our sample, respectively.

with Christopher James & Tao Li

Invited to present at: Michigan State University, Midwest Finance Association


Whether maturity transformation exposes banks to interest rate risk depends in part on the effectiveness of bank deposits as a hedge against interest rate shocks. In this paper, we provide evidence that, despite an increase in the average maturity of bank assets, the duration of bank equity declined in the post-financial crisis era. We argue that one factor contributing to the decline was an increase in the average duration of deposits due to a decline in deposit betas when interest rates are low. The dynamics nature of the duration of deposits also explains why deposits provided a poor hedge against recent rate hikes. Overall we find that variable deposit betas combined with mortgage lending leads to a negative convex relationship between the value of bank equity and interest rates.

Portfolio Spread for a loan mutual fund. The Y-axis is the ratio of the portfolio value of loans based on reported prices by the loan mutual fund to the portfolio value of loans based on the closest daily bid price on the report date.  Each blue dot represents monthly deviation in a year. The red line is the time-series average of the fund’s deviation during the sampling period.

with Christopher James

Invited to present at: Fed Richmond, HSE, University of Florida, WFA


The growth of mutual fund investing in private and thinly traded instruments has raised concerns regarding the valuation practices of fund managers. In this paper we examine the valuation practices of loan mutual funds and analyze the relationship between indicators of discretionary pricing and investment flows. Overall, we find evidence of return smoothing by loan funds. In addition, we find greater return smoothing during periods of market illiquidity when the incentives inflate valuations are likely the greatest. Finally, we find that smoothed returns affect investment flows into retail but not institutional oriented funds.

The pricing impact of a lawsuit: This figure plots issuance spread for secured and unsecured borrowing in the high-yield market following a lawsuit. 

with Dominique Badoer & Christopher James

Invited to present at: University of Illinois at Chicago


We investigate the effectiveness of security in protecting creditors from dilution arising from litigation and other non-debt related claims; claims we refer to as exogenously unsecured. Consistent with this security affording greater protection from dilution, we find that disclosures of litigation claims are associated with a significant increase in the spread between a firm’s unsecured and secured and debt claims. More important, we find that the propensity of material litigation claims is negatively related to firms’ reliance on secured debt. Our findings are consistent with the notion that collateral provides protection from litigation claims, and thus is an additional motivation for firms to borrow on a secured basis, even in circumstances where covenants on unsecured claims might be effective in mitigating the agency costs of debt.

The figure represents average pair-wise overlap among Collateralized Loan Obligations' asset pool in the US.

Correlated Trading 

in Private Credit Agreements

Solo-authored Paper - Draft available upon request.

Invited to present at: Eastern FA, Fed New York, SWFA


Recent trends in the leveraged loan market towards weaker creditor protection have raised concerns regarding the credit risk of loans originated and then sold to Collateralized Loan Obligations (CLOs). Relaxed due diligence on the part of CLO managers in the acquisition and sale of leveraged loans has the potential to exacerbate unmodeled systemic risk, or frailty. In this paper I examine a channel through which CLOs may contribute to the frailty posed by these trends: correlated trading by CLO managers when they buy or sell a loan in the secondary markets. Consistent with a moral hazard hypothesis, the propensity to engaging in correlated trading is negatively and significantly associated with the CLO performance. Consistent with its potential to exacerbate frailty, correlated trading is positively related to the correlated holdings of collateralized assets. I also provide evidence that CLO managers engage in correlated trading due to reputational concerns. The risk retention rule that increases CLO managers skin in the game significantly reduced correlated trading.

Work in Progress 

On Creditibility of 

Banks' ESG Commitments  

with Nishad Kapadia, Robert Prilmeier & William Waller

At the stage of data collection and processing

Risk Factors in the Banking Industry  

through Textual Analysis 


At the stage of data processing

Published Papers

Institutions and Business Cycles

with Sumru Altug & Bilin Neyapti

International Finance

Volume: 15-3, pg. 347-366, 2012


This paper investigates the relationship between the main features of business cycles and the institutional and structural characteristics of countries of up to 62 industrial, emerging and formerly centrally planned economies from all continents. We derive the business cycle characteristics using the nonparametric Harding-Pagan approach. Our analysis reveals that institutional factors have significant associations with the duration and amplitude of business cycles. Examining the determinants of business cycle synchronization for the countries in our sample, we also demonstrate that the bilateral proximity of institutional and policy environments matters in addition to the gravity arguments, trade intensity and bilateral financial linkages used in earlier studies.