This paper introduces and examines an intriguing puzzle arising from the market’s persistent tendency to overestimate the trajectory of spot interest rates resulting in lucrative cumulative long-term returns for net zero investments. We introduce a new metric called the “Hairy” premium to...

Safe and liquid assets like Treasuries are not a cash substitute. However, dealer banks may transform Treasuries into a money-like financial asset, i.e., a repurchase agreement collateralized with Treasuries. The ratio of Treasuries useable as repo collateral by dealer banks over demand for...

The existing literature has shown that an increase in the demand for safe assets induces the private sector to create more of them. Focusing on repos backed by US Treasuries, I theoretically and empirically show that an increase in the demand for safe assets leads to a decrease in repos...

It has been documented that an increase in the demand for safe assets induces the private sector to create more money-like claims. Focusing on private repos backed by U.S. Treasury securities, I show that an increase in the demand for safe assets leads to a decreases in the issuance of Treasury...

I propose a measure of adjusted leverage as a proxy for the pricing kernel of a representative financial intermediary. Using a simple theoretical framework with information production, I show that in states of the world where credit outstanding in the economy is low, financial leverage is not an...

We model the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary. Intermediaries face an equity capital constraint. Risk premia rise when the constraint binds, reflecting the capital scarcity. The calibrated model matches the...