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Articles 1 - 15 of 15
Full-Text Articles in Finance and Financial Management
The Clientele Effect Around The Turn Of The Year: Evidence From The Bond Markets, Vladimir Kotomin
The Clientele Effect Around The Turn Of The Year: Evidence From The Bond Markets, Vladimir Kotomin
Faculty Publications - Finance, Insurance, and Law
Studying the returns of US Treasury, corporate, and municipal (muni) bonds at the index level over 2004-2020, I find a strong turn-of-the-year effect – low December returns and high January returns – in the high-yield muni index. The investment-grade muni index exhibits a similar but weaker effect. High-yield munis is the only class whose December returns are negatively correlated with year-to-date yield changes. Dominance of highly tax-sensitive households who engage in tax-loss selling, combined with opaqueness, low liquidity, and a small role of ETFs in munis make it difficult to arbitrage away the December price decreases. The investment-grade and high-yield …
Mutual Funds’ Soft Dollar Arrangements: Determinants, Impact On Shareholder Wealth, And Relation To Governance, Yaman Ö. Erzurumlu, Vladimir Kotomin
Mutual Funds’ Soft Dollar Arrangements: Determinants, Impact On Shareholder Wealth, And Relation To Governance, Yaman Ö. Erzurumlu, Vladimir Kotomin
Faculty Publications - Finance, Insurance, and Law
Mutual fund advisers either expense the cost of research and other services or pay for them with soft dollars. This study is the first to use actual soft dollar and total brokerage commission figures for a large number of funds and to examine how soft dollars are linked to mutual fund governance. Employing a survivorship bias-free sample of actively managed US mutual funds, we find that higher soft dollar and total brokerage commissions are associated with higher advisory fees but not with higher risk-adjusted fund returns. These findings suggest that mutual fund shareholders, on average, do not benefit from the …
Benefits Of Lending Relationships In Public Debt Markets: Empirical Evidence From The Commercial Paper Market, David W. Blackwell, Vladimir Kotomin, Drew B. Winters
Benefits Of Lending Relationships In Public Debt Markets: Empirical Evidence From The Commercial Paper Market, David W. Blackwell, Vladimir Kotomin, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
There is a large body of literature on the benefits of established lending relationships with banks, which is an intermediated debt market. We extend the literature by testing for benefits from direct lending relationships in the commercial paper market, which is a public debt market. Diamond (1991) suggests that firms access public debt markets when they have enough reputation to no longer require the close monitoring by banks. Using daily rate data for dealer-placed and directly placed commercial paper, we find that the year-end liquidity squeeze is less pronounced in the directly placed commercial paper than in the dealer-placed commercial …
Interest-Rate And Calendar-Time Effects In Money Market Fund And Bank Deposit Cash Flows, Vladimir Kotomin, Stanley D. Smith, Drew B. Winters
Interest-Rate And Calendar-Time Effects In Money Market Fund And Bank Deposit Cash Flows, Vladimir Kotomin, Stanley D. Smith, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
We examine the sensitivities of aggregate balances of retail and institutional money market funds (MMFs) and their potential substitutes, bank deposits, to changes in short-term interest rates while controlling for calendar-time effects. We find that institutional MMF and time deposit cash flows are sensitive to recent changes in short-term interest rates. Institutional MMF investors appear to take advantage of arbitrage opportunities created by MMFs using the amortized cost technique. Retail MMF investors are much less responsive to changes in interest rates.
A Look Inside Amlf: What Traded And Who Benefited, Ozgur Akay, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
A Look Inside Amlf: What Traded And Who Benefited, Ozgur Akay, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
The Federal Reserve’s AMLF program was designed to provide liquidity to money market funds (MMFs). Between September 2008 and May 2009, the program made $217 billion in non-recourse loans to depository institutions and bank holding companies to purchase asset-backed commercial paper from MMFs. JP Morgan and State Street dominated the program, accounting for over 90% of all loans made. Our analysis suggests that JP Morgan exhibited more self-dealing behavior than State Street. We find that JP Morgan and State Street earned economically and statistically significant cumulative returns of 2.28% and 2.49% (respectively) over the first seven days of the program …
The Year-End Effect In Money Market Yields: Beyond One Month And Beyond The Crisis, Vladimir Kotomin
The Year-End Effect In Money Market Yields: Beyond One Month And Beyond The Crisis, Vladimir Kotomin
Faculty Publications - Finance, Insurance, and Law
U.S. money market yields up to one month have shown changes consistent with year-end liquidity preferences. I find that three- and six-month negotiable certificate of deposit (CD), Eurodollar deposit (ED), and banker’s acceptance (BA) yields are also affected by year-end liquidity preferences. Two- and three-month financial commercial paper (CP) yield changes are less pronounced. Banks – CD, ED, and BA issuers – have increased year-end liquidity needs, unlike finance companies – predominant CP issuers. The year-end effect disappears after the 2007-2008 crisis as depositories’ cash holdings increase. CD, ED, and CP yields diverge post-crisis, suggesting that investors no longer consider …
A Crisis Of Confidence: Understanding Money Markets During The Financial Crisis, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
A Crisis Of Confidence: Understanding Money Markets During The Financial Crisis, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
The money markets are at the heart of the recent financial crisis and are the subject of substantial news coverage. However, much of what was reported showed a lack of understanding of money markets in general and, a specific lack of understanding as to why the financial crisis unfolded as it did in these markets. The purpose of this paper is to discuss what actually happened and why. Specifically, we discuss: (1) the economic role of the money markets, (2) the institutional features of the money markets central to the financial crisis and, (3) what actually happened in the various …
A Test Of The Expectations Hypothesis In Very Short-Term International Rates In The Presence Of Preferred Habitat For Liquidity, Vladimir Kotomin
A Test Of The Expectations Hypothesis In Very Short-Term International Rates In The Presence Of Preferred Habitat For Liquidity, Vladimir Kotomin
Faculty Publications - Finance, Insurance, and Law
This study incorporates year-end and quarter-end preferences for liquidity and other calendar-time effects into the test of the expectations hypothesis (EH) in the very short-term LIBOR (maturities of one month and shorter) in seven major world currencies. The calendar-time effects are found to alter long-term relations between very short-term rates in these currencies. These effects alone are not responsible for the rejection of the EH in the data, as it is rejected in most of the cases even after appropriate controls are introduced. However, such effects are capable of causing the EH to be rejected and should be controlled for …
The Fed And The 2007-2009 Financial Crisis: Treating A Virus With Antibiotics? Evidence From The Commercial Paper Market, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
The Fed And The 2007-2009 Financial Crisis: Treating A Virus With Antibiotics? Evidence From The Commercial Paper Market, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
The two main explanations for the 2007-2009 financial crisis in the money markets are credit concerns and liquidity issues. These risks are intimately related, especially in the money markets, and either can lead to somewhat similar behavior by market participants. We study the U.S. commercial paper (CP) market to draw insights about the nature of the crisis which resulted in the amount of outstanding CP shrinking from the peak of $2.18 trillion in early August 2007 to $1.27 trillion in early July 2009. However, the CP market is not homogeneous in terms of credit quality, maturities and types of issues …
When East And West Meet: An Essay On The Importance Of Cultural Understanding In Global Business Practice And Education, Sj Chang
Faculty Publications - Finance, Insurance, and Law
As today’s business decisions and choices are increasingly influenced by the diverse cultural backgrounds and perspectives of various corporate stakeholders, it is critical for business managers to have multicultural understanding. This motivates us to refine our business perspectives and approaches in global arena as well as our educational philosophies on global business management. Based on casual yet experiential discussions, this essay presents some cohesive points on comparative cultural understanding and business implications thereof between the “West” and the “East,” which is presupposed by the cultural contrasts between America and Korea. It can hopefully serve as a practically meaningful guideline for …
Inventory Management Effects, Isolated: Evidence From The Federal Funds Market, Yaman Ö. Erzurumlu, Vladimir Kotomin
Inventory Management Effects, Isolated: Evidence From The Federal Funds Market, Yaman Ö. Erzurumlu, Vladimir Kotomin
Faculty Publications - Finance, Insurance, and Law
The federal funds market is highly competitive, has uniform information, and does not have most order-processing cost components of equity markets. Hence, it provides an opportunity to study the effect of inventory management on the bid-ask spread in an isolated fashion. Using a unique data set of daily borrowing and lending federal funds quotes posted by a large commercial bank, we find that the bank maintains a fairly constant bid-ask spread throughout a two-week reserve maintenance period. It acts similarly to a market maker facilitating flow of funds between depository institutions throughout the reserve maintenance period. The bank becomes more …
Year-End And Quarter-End Effects In The Term Structure Of Sterling Repo And Eurepo Rates, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
Year-End And Quarter-End Effects In The Term Structure Of Sterling Repo And Eurepo Rates, Mark D. Griffiths, Vladimir Kotomin, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
Griffiths and Winters (1997) find a year-end preferred habitat for liquidity for US repo rates, and, later, Griffiths and Winters (2005) find a similar preferred habitat for US money market instruments. Kotomin et al. (2008) document the preferred habitat in LIBOR for the major world currencies, excluding the British pound. We examine the robustness of these results using pound sterling and euro repo rates and find a year-end preferred habitat for liquidity in the euro repo rates. The British interest rates continue to behave differently, and we provide a possible explanation as to why this occurs.
Preferred Habitat For Liquidity In International Short-Term Interest Rates, Vladimir Kotomin, Stanley D. Smith, Drew B. Winters
Preferred Habitat For Liquidity In International Short-Term Interest Rates, Vladimir Kotomin, Stanley D. Smith, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
Risk-shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why U.S. money market rates are higher before the year-end than afterwards. The two hypotheses differ in the timing of the rate decline at the year-end and the evidence on the timing of the decline supports the preferred habitat hypothesis in U.S. money markets. This paper extends this line of research to the behavior of international short-term interest rates at year-ends and quarter-ends using London Interbank Offer Rates (LIBOR) for 11 different currencies. The results suggest that the behavior of LIBOR for five …
The Impact Of The Return To Lagged Reserve Requirements On The Federal Funds Market, Vladimir Kotomin, Drew B. Winters
The Impact Of The Return To Lagged Reserve Requirements On The Federal Funds Market, Vladimir Kotomin, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
We examine the impact on the settlement Wednesday effect in daily fed funds rates following the change from contemporaneous reserve requirements (CRR) to lagged reserve requirements (LRR). The Federal Reserve changed from CRR to LRR, in part, to make it easier for banks to settle their reserve accounts. Our hypothesis is that the switch to LRR will reduce the demand for reserves on settlement Wednesdays, thus reducing the settlement Wednesday effect in fed funds rates. Our empirical results provide strong support for our hypothesis.
Quarter-End Effects In Banks: Preferred Habitat Or Window Dressing?, Vladimir Kotomin, Drew B. Winters
Quarter-End Effects In Banks: Preferred Habitat Or Window Dressing?, Vladimir Kotomin, Drew B. Winters
Faculty Publications - Finance, Insurance, and Law
Allen and Saunders (1992) document abnormal behavior of bank assets and liabilities at the turn-of-the-quarter and attribute it to window dressing by banks. Using different methods we re-visit bank turn-of-the-quarter balance sheet activity. We also examine quarter-end changes in the effective fed funds rates and fed funds rate standard deviations. We confirm the presence of turn-of-the-quarter activity on bank balance sheets and in the fed funds market. However, we conclude that the turn-of-the-quarter effects are more consistent with customer preferred habitats than window dressing.