Research Agenda
See my “Research
Statement.”
Published and Forthcoming Papers
1. “Market
Liquidity and Funding Liquidity,”
Markus Brunnermeier and Lasse Heje Pedersen (2008), The Review of
Financial Studies, forthcoming. See cite in The Economist
Market liquidity and the funding of traders are mutually reinforcing, giving
rise to fragility, flight to quality, and other important phenomena.
2. “Demand-Based
Option Pricing,”
Geewax, Terker & Company First Prize,
2006.
How end user demand affects option pricing when dealers cannot perfectly
hedge. New theory and unique data.
3. “Carry
Trades and Currency Crashes,”
Markus Brunnermeier, Stefan Nagel, and Lasse Heje Pedersen (2008), NBER
Macroeconomics Annual, forthcoming.
4. “Slow
Moving Capital,”
Mark Mitchell, Lasse Heje Pedersen, and Todd Pulvino
(2007), The American Economic Review, P&P, vol. 97, no. 2, pp.
215-220.
Empirical evidence: when arbitrageurs lose capital and new capital arrives
slowly, prices become depressed and later rebound.
5. “Liquidity
and Risk Management,”
Tighter risk management can lead to illiquidity and lower prices. A
multiplier effects arises with liquidity-adjusted risk management.
6. “Valuation
in Over-the-Counter Markets,”
The effect of search and bargaining on asset prices and the dynamics of
aggregate liquidity shocks.
7. “Liquidity
and Asset Prices,”
A survey of the literature.
8. “Asset
Pricing with Liquidity Risk,”
Viral Acharya and Lasse Heje Pedersen (2005), Journal of Financial Economics,
vol. 77, pp. 375-410.
Fama/DFA First Prize for best paper in the
Journal of Financial Economics, 2005.
NYSE Award for best paper on equity trading, Western Finance Association, 2003.
Glucksman First-Place Award for best
research paper in finance, NYU Stern, 2002-2003.
How unpredictable changes in liquidity affect security returns; theory and
empirical evidence.
9. “Predatory
Trading,”
Markus K. Brunnermeier and Lasse Heje Pedersen (2005), The
Journal of Finance, vol. 60, no. 4, pp. 1825-1863.
Nominated for the Smith-Breeden Prize for best paper in
The Journal of Finance, 2005.
Barclays Global Investors Award for the best conference paper at the
European Finance Association, 2003.
When a large trader liquidates, “predators” also sell, leading
to price over-shooting and systemic risk.
10. “Over-the-Counter
Markets,”
Marketmakers' spread is narrower for
sophisticated investors with better search options (NB: reverse of information-based
models).
11. “Adverse
Selection and the Required Return,”
Bid-ask spreads due to asymmetric information affect required returns
differently than exogenous trading costs - paper shows explicitly how.
12. “Modeling
Sovereign Yield Spreads: A Case Study of Russian Debt,”
Nominated for the Smith-Breeden Prize for best paper in
The Journal of Finance, 2003.
A model of credit risk accounting for both default and
restructuring. The study of Russian debt uses a new estimation
method.
13. “Securities
Lending, Shorting, and Pricing,”
NYSE Award for best paper on equity trading, Western Finance Association,
2002.
Short sellers search for stock owners and pay a lending fee. The lending fee
increases the stock's price.
Working Papers
“How
Sovereign is Sovereign Credit Risk?,”
Francis A. Longstaff,
“Corporate Bond Specialness,”
Amrut Nashikkar and Lasse Heje Pedersen.
Shorting costs are high for corporate bonds that are of worse credit, more
expensive relative to the CDS, have equity on special, smaller issues, and more
illiquid.
“Auctions with Endogenous Selling,”
The effect of market structure on volume, prices, and
welfare with applications to real-world auctions.
“Density-Based
Inference in Affine Jump-Diffusions,”
Jun Liu,
A closed-form approximation to the density of affine jump
diffusions with applications to finance.
Work in Progress
“Value and Momentum Everywhere,”
Cliff Asness, Tobias Moskowitz,
and Lasse Heje Pedersen.
“Risks and
Opportunities in Liquidity Crisis: A Study of the Quant Event in August 2007,”
Tobias Moskowitz and Lasse Heje Pedersen.
“Avoiding Crowded
Trades,”
Tobias Moskowitz and Lasse Heje Pedersen.
“Margins,”
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