Tax distortions and bond issue pricing
Accepted at the Journal of Financial Economics, forthcoming. Previously titled “Why are municipal bonds issued at a premium?” and “Tax-efficient Issuance and Trading of Tax-exempt bonds”.
Unlike taxable bonds, tax-exempt bonds are regularly issued at a premium. I argue that this is a form of tax arbitrage that potentially costs the U.S. Treasury $1.7 billion a year.
Abstract – Presentations – PDF – Internet Appendix updated 2017-10-01
Tricks of the trade? Pre-issuance price maneuvers by underwriter-dealers
With Jun Kyung Auh (Georgetown University/Yonsei University) and You Suk Kim (Federal Reserve Board of Governors). Revise and resubmit at the Journal of Financial Economics.
We use unmasked regulatory data to examine the behavior of securities dealers affiliated with the underwriters of corporate bond issues. We find that, before and after the new issue event, affiliated dealers bid aggressively for the issuer’s pre-existing bonds.1
Abstract – Presentations – PDF updated 2018-10-15
Linking policy to outcomes: a simple framework for debt maturity management
With Winthrop T Smith (Win Analytics LLC) and Christopher Cameron (U.S. Department of the Treasury). Under review at Management Science.
We introduce a new way to think about debt management policy. Our results indicate that the U.S. Treasury may be able to reduce cost of borrowing without increasing refinancing risk.2
Abstract – Presentations – PDF updated 2019-5-8
Should the government be paying investment fees on $3 trillion of tax-deferred retirement assets?
With Stephen Zeldes (Columbia University).
Traditional (EET) retirement accounts are funded with pre-tax money, Roth (TEE) retirement accounts with after-tax money. For this reason, Traditional retirement accounts have more assets and pay more fees. The excess fees are implicitly paid by the government. We estimate that the U.S. government is paying fees of $13.5 billion a year on its $3 trillion implicit account.
Abstract – Presentations – PDF – Internet Appendix updated 2018-12-16
Loan Terms and Collateral: Evidence from the Bilateral Repo Market
With Jun Kyung Auh (Georgetown University/Yonsei University). Revise and resubmit at the Journal of Finance.
Using a proprietary dataset of bilateral repurchase agreements, we show that when collateral quality drops, spread rises, haircut rises, but also–less obviously–maturity gets longer.
Abstract – Presentations – PDF updated 2016-12-9
Does fixed point iteration converge to the correct asset price in dynamic models with taxes?
With Diego Vega (SMU).
Taxes may cause asset prices to be recursively dependent (e.g., the more you pay today, the more depreciation deductions you get in the future, the more you are willing to pay today). We show that fixed point iteration (that thing you do when you allow a circular reference in Excel) is usually a very safe solution technique. However, we also provide intuition about cases in which it doesn’t work.
Abstract – PDF updated 2018-4-6
Do taxes or information drive demand for bond insurance?
For tax-exempt bonds, default insurance may have positive tax consequences. However, I show that in practice for the average insured bond these consequences are likely negative, and very small in absolute value. Observed issuance patterns are consistent with insurance creating value by reducing uncertainty about bond quality.
Abstract – Presentations – PDF updated 2017-3-15
Capital gains taxes and trading incentives
Job market paper.
Realizing capital gains on appreciated taxable bonds is less expensive than on tax-exempt bonds. Accordingly, I show that property-casualty insurance companies are very reluctant to realize gains on tax-exempt bonds, but only mildly reluctant to sell taxable bonds.
Abstract – Presentations – PDF updated 2015-10-3
Quantifying Tail Risk for Hedge Funds
With Ravi Sastry (University of Melbourne).
We propose an innovative way to measure and predict tail risk for hedge funds.
Abstract – Presentations – PDF updated 2015-7-30
- Disclaimer: The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the staff, by the Board of Governors, or by the Federal Reserve System.
- Disclaimer: The analysis and conclusions set forth in this paper are those of the author(s), and do not necessarily reflect those of or indicate concurrence by other members of the Treasury staff, Treasury’s senior officials, the Treasury Department, or the United States government.