Published and Forthcoming Papers (BibTeX)
“When Everyone Runs for the Exit,” Lasse
H. Pedersen (2009), The International Journal of Central Banking,
forthcoming.
Understanding the
global liquidity crisis and the quant event. Evidence on the driving mechanisms. (A solicited commentary.)
New. Featured
in the New York Times
“Market Liquidity and Funding Liquidity,” Markus Brunnermeier
and Lasse H. Pedersen (2009), The Review of
Financial Studies, 22, 2201-2238.
Market liquidity and the funding conditions are mutually reinforcing, giving
rise to liquidity spirals, fragility, flight to quality, and systemic risk.
Featured in The Economist
“Demand-Based
Option Pricing,” Nicolae Garleanu,
Lasse H. Pedersen, and Allen Poteshman
(2009), The Review of Financial Studies, forthcoming.
How end user demand affects option pricing when dealers cannot perfectly
hedge. New theory and unique data.
Geewax, Terker & Company First Prize,
2006.
“Carry
Trades and Currency Crashes,” Markus
Brunnermeier, Stefan Nagel, and Lasse
Heje Pedersen (2008), NBER Macroeconomics Annual,
23, 313-348.
How the carry trade is subject to crash
risk during funding liquidity crisis. Results help resolve the “forward
premium puzzle”.
“Slow
Moving Capital,” Mark
Mitchell, Lasse Heje
Pedersen, and Todd Pulvino (2007), The American
Economic Review, P&P, 97, 215-220.
Empirical evidence: when arbitrageurs lose capital and new capital arrives
slowly, prices become depressed and later rebound.
“Liquidity
and Risk Management,” Nicolae Garleanu, and Lasse Heje Pedersen (2007), The American Economic Review, P&P,
97, 193-197.
Tighter risk management can lead to illiquidity and lower prices. A
multiplier effects arises with liquidity-adjusted risk management.
“Valuation
in Over-the-Counter Markets,” Darrell Duffie,
Nicolae Garleanu, and Lasse H. Pedersen (2007), The
Review of Financial Studies, 20, 1865-1900.
The effect of search and bargaining on asset prices and the dynamics of
aggregate liquidity shocks.
“Liquidity
and Asset Prices,” Yakov Amihud, Haim
Mendelson, and Lasse Heje Pedersen (2005), Foundations and Trends in Finance,
1, 269-364.
A survey of the literature.
“Asset
Pricing with Liquidity Risk,”
Viral Acharya and Lasse Heje Pedersen (2005), Journal of Financial Economics,
77, 375-410.
How unpredictable changes in liquidity affect security returns; a
liquidity-adjusted CAPM and empirical evidence.
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.
“Predatory
Trading,” Markus K. Brunnermeier and Lasse Heje Pedersen (2005), The
Journal of Finance, 60, 1825-1863.
When a large trader liquidates, “predators” also sell, leading
to price over-shooting and systemic risk.
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.
“Over-the-Counter
Markets,” Darrell Duffie, Nicolae Garleanu, and Lasse Heje Pedersen (2005), Econometrica,
73, 1815-1847.
Marketmakers' bid-ask spread is narrower
for sophisticated investors with better search options (NB: reverse of
information-based models).
“Adverse
Selection and the Required Return,” Nicolae Garleanu
and Lasse Heje Pedersen
(2004), The Review of Financial Studies,
17, 643-665.
Bid-ask spreads due to asymmetric information affect required returns
differently than exogenous trading costs - paper shows explicitly how.
“Modeling
Sovereign Yield Spreads: A Case Study of Russian Debt,” Darrell Duffie, Lasse H. Pedersen, and Ken Singleton (2003), The Journal of Finance, 58, 119-159.
A model of credit risk accounting for both default and
restructuring. The study of Russian debt develops a new
estimation method.
Nominated for the Smith-Breeden Prize for best paper
in The Journal of Finance, 2003.
“Securities Lending, Shorting, and Pricing,” Darrell Duffie,
Nicolae Garleanu, and Lasse Heje Pedersen (2002), Journal
of Financial Economics, 66, 307-339.
Short sellers search for stock owners and pay a lending fee. The lending fee
increases the stock's price.
NYSE Award for best paper on equity trading, Western Finance Association, 2002.
Working Papers
“Margin-Based Asset Pricing and Deviations from the Law of
One Price,” Nicolae Garleanu and Lasse Heje Pedersen (2009). Slides.
Understanding the effects of the Fed’s lending programs, the CDS-bond
basis, the failure of the covered interest-rate parity, and more.
New 2009.
“Measuring Systemic Risk,” Viral Acharya, Lasse Heje Pedersen, Thomas Philippon, and Matt Richardson (2009).
An economic model of how to measure and manage systemic risk
with empirical support from the recent crisis.
New 2009.
“Dynamic
Trading with Predictable Returns and Transaction Costs,” Nicolae Garleanu and Lasse Heje Pedersen (2008). Slides.
Closed-form optimal trading strategy: updated portfolio is a combination of
existing portfolio, optimal portfolio absent trading costs, and future optimal
portfolio, illuminating the role of alpha decay and with equilibrium
implications.
New 2009.
“Value and Momentum Everywhere,”
Value and momentum effects appear across global markets in equities,
commodities and bonds. There is an intriguing val-mom
correlation structure. Liquidity and long-run consumption risks play a
role.
Featured in the New York Times
“How
Sovereign is Sovereign Credit Risk?,”Francis A. Longstaff, Jun Pan, Lasse Heje Pedersen, and Kenneth
J. Singleton (2007).
Sovereign CDS can be explained by, and predicted by,
“Corporate Bond Specialness,”
Amrut Nashikkar and Lasse Heje Pedersen (2007).
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,” Nicolae Garleanu and Lasse Heje Pedersen (2000).
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, Jun Pan, and Lasse
Heje Pedersen (2000).
A closed-form approximation to the density of affine jump diffusions with
applications to finance.
Work in Progress
“Haircuts or Interest-Rate
Cuts” Adam Ashcraft, Nicolae Garleanu, and Lasse Heje Pedersen (2009).
NBER Macroeconomics
Annual, 2010, forthcoming.
“Global Market and Funding Liquidity Risk Across Asset
Classes,”
“Monetary Policy with
Credit-Supply Frictions,” Nicolae Garleanu and Lasse Heje Pedersen (2009).
“Crowded Trades and Liquidity
Risk,”
Policy Papers
“Regulating Systemic Risk,” Viral Acharya,
Lasse Heje Pedersen, Thomas
Philippon, and Matt Richardson (2009), in Restoring Financial
Stability: How to Repair a Failed System, ed. by Viral Acharya and Matt Richardson, Wiley, chap. 13, 283-304. Summary.
“Hedge Funds in the Aftermath of the Financial
Crisis” Stephen
Brown, Marcin Kacperczyk,
Alexander Ljungqvist, Anthony Lynch, Lasse Heje Pedersen, and Matthew
Richardson (2009), in Restoring
Financial Stability: How to Repair a Failed System, ed. by Viral Acharya and Matt Richardson, Wiley, chap. 6, 157-178. Summary.
”Saving
free markets from market failure: institutions and liquidity are
crucial,” Lasse Heje Pedersen, Forbes, 9/29/2009.
Chinese version, sina.com.cn: 佩德森：避免自由市场失灵
“A proposal to prevent wholesale financial failure,” Lasse H.
Pedersen and Nouriel Roubini,
Financial Times, 1/30/2009.
“Liquidity risk and the current crisis,” Lasse H.
Pedersen, Stern
on Finance and VoxEU.