We argue that mutual funds might hold liquid assets to collect rents. We propose a parsimonious model of active portfolio management that incorporates trading costs and liquidity management. Following bad performance, managers compensated on total assets under management optimally reduce illiquid and liquid holdings to maximize expected returns. Managers compensated on past performance, on the other hand, accommodate redemptions by depleting liquid assets first. This strategy, however, exaggerates outflows and destabilizes the fund due to lower expected returns. Moreover, using cash for rent collection is preferred to higher management fees as it makes mutual funds less prone to redemption shocks. Overall, we challenge the interpretation of liquid holdings as conclusive evidence for the degree of liquidity transformation that mutual funds provide.
Working Paper, 2017.

We provide novel evidence of banks establishing lending relationships with prestigious firms to signal their quality and attract future business. Using survey data on firm-level prestige, we show that lenders compete more intensely for prestigious borrowers and offer lower upfront fees to initiate lending relationships with prestigious firms. We also find that banks expand their lending after winning prestigious clients. Prestigious firms benefit from these relations as they face lower costs of borrowing even though prestige has no predictive power for credit risk. Our results are robust to matched sample analyses and a regression discontinuity design.
Working Paper, 2017.

We investigate which bonds institutional investors sell in fire-sales. We find that these are mostly bonds that were trading in liquid markets before the fire-sale, and that they are sold by other institutions as well. Somewhat surprisingly, the price impacts in these markets are higher than in bonds that were trading in less liquid markets before the fire-sale, but are also liquidated during fire-sales. It appears as if liquid bonds in fire-sales exhibit larger price impacts than less-liquid bonds. We argue this is because institutions fail to fully account for the effect of selling common bonds on other market participants. Controlling for commonality of bonds, we find that in fire-sales liquid bonds have smaller price impacts. This result matters for the measurement of systemic risk: the commonality of liquid bonds exacerbates fire-sales losses, as they are sold more in fire-sales. So measures of portfolio similarity should over-weight liquid bonds overlap, not under-weight it.
Working Paper (new version coming soon), 2017.


I was teaching assistant for the following courses:

  • University of Vienna: Calculus, Keynes for Beginners, International Macroeconomics, Macroeconomics and Inequality
  • TU (Vienna University of Technology): Microeconomics
  • Gutman Private Welath Management Seminar: FinTech
  • WU (Vienna University of Economics and Business): Linear Algebra

Some useful notes for students: