Aytek
Malkhozov
Senior Economist,
Federal Reserve Board of Governors
Email:
aytek.malkhozov.research@gmail.com
Curriculum Vitae
The views expressed here are my own and do not reflect those of the
Federal Reserve Board of Governors.
Publications
Mortgage
Risk and the Yield Curve
with
P. Mueller,
A. Vedolin, and
G. Venter
Review of Financial Studies,
2016, 29(5), 12201253
We study feedback from the risk of outstanding mortgagebacked
securities (MBS) on the level and volatility of interest rates.
We incorporate supply shocks resulting from changes in MBS
duration into a parsimonious equilibrium dynamic term structure
model and derive three predictions that are strongly supported
in the data: (1) MBS duration positively predicts nominal and
real excess bond returns, especially for longer maturities; (2)
the predictive power of MBS duration is transitory in nature;
and (3) MBS convexity increases interest rate volatility, and
this effect has a humpshaped term structure.
Does Variance Risk Have Two Prices?
with
L. Barras
Journal of Financial Economics, 2016, 212(1), 7992
online appendix
We formally compare two versions of the market variance risk
premium (VRP) measured in the equity and option markets. Both
VRPs follow common patterns and respond similarly to changes in
volatility and economic conditions. However, we reject the null
hypothesis that they are identical and find that their
difference is strongly related to measures of the financial
standing of intermediaries. These results shed new light on the
information content of the VRP, suggest the presence of market
frictions between the two markets, and are consistent with the
key role played by intermediaries in setting option prices.
How Have Central Banks Implemented
Negative Policy Rates?
with
M. Bech
BIS Quarterly Review,
March 2016, 3144 Press coverage:
FT,
FT,
WSJ,
WSJ,
Bloomberg,
CNNMoney
Since mid2014, four central banks in Europe have moved their
policy rates into negative territory. These unconventional moves
were by and large implemented within existing operational
frameworks. Yet the modalities of implementation have important
implications for the costs of holding central bank reserves. The
experience so far suggests that modestly negative policy rates
transmit through to money markets and other interest rates for
the most part in the same way that positive rates do. A key
exception is retail deposit rates, which have remained insulated
so far, and some mortgage rates, which have perversely
increased. Looking ahead, there is great uncertainty about the
behaviour of individuals and institutions if rates were to
decline further into negative territory or remain negative for a
prolonged period.
Asset Prices in Affine Real Business Cycle Models
Journal of Economic Dynamics and Control, 2014, 45, 180193
I describe a tractable way to study macroeconomic quantities and
asset prices in a large class of dynamic stochastic general
equilibrium models. The proposed approximate solution is
analytical, loglinear, and adjusted for risk. Therefore, it is
well suited to investigate economic mechanisms, describe the
time series properties or estimate the model, and deal with
stochastic volatility. I explain the pitfalls encountered by
previous attempts to use simple approximation techniques, in
particular with models featuring recursive preferences. Finally,
I show the theoretical relationship between my solution and
higherorder perturbation methods.
Working Papers
International Illiquidity
with
P. Mueller,
A. Vedolin, and
G. Venter
R&R Review of Financial Studies
FRB International Finance Discussion Papers 20171201
online appendix
We build a parsimonious international asset pricing model in
which deviations of government bond yields from a fitted yield
curve of a country measure the tightness of investors' capital
constraints. We compute these measures at daily frequency for
six major markets and use them to test the modelpredicted
effect of funding conditions on asset prices internationally.
Global illiquidity lowers the slope and increases the intercept
of the international security market line. Local illiquidity
helps explain the variation in alphas, Sharpe ratios, and the
performance of bettingagainstbeta (BAB) strategies across
countries.
Market Integration and Global Crashes
with
S. Malamud
CEPR Discussion Papers 11468
We develop an equilibrium model of real and financial market
integration in which real firms and financial actors
independently decide on their investment into different
locations (countries). We show that, in the presence of
financial frictions, firms' real investment choices may become
strategic complements, leading to multiple, selffulfilling
equilibria, as well as to real fragility, whereby a small change
in one country's fundamentals triggers a large large change in
real investment everywhere. This fragility may lead to a global
crash in which severe underinvestment into countries with
underdeveloped financial markets spills over all other
countries. We show that such global crashes are particularly
severe when frictions are sufficiently symmetric across
countries. By contrast, with enough asymmetry, the economy is
likely to end up in a local crash equilibrium in which countries
with low real investment barriers suffer the most.
Reversals in Global Market Integration and
Funding Liquidity
with
A. Akbari and
F. Carrieri
FRB International Finance Discussion Papers 20171202
This paper looks at the reversals
in global financial integration through the funding liquidity
lens. First, we construct a segmentation indicator based on
differences in funding liquidity across countries as measured by
the performance of bettingagainstbeta strategies. Second, we
find that funding liquidity shocks help explain recent reversals
in integration in the absence of explicit foreign investment
barriers. These findings are consistent with tighter limits to
arbitrage and increased home bias during funding distress
periods. Our empirical analysis is guided by a marginCAPM model
generalized to an international setting.
News Shocks and Asset Prices
with
A. Tamoni
We study the importance of anticipated shocks (news) for
understanding the comovement between macroeconomic quantities
and asset prices. We find that fourquarter anticipated investment
shocks are an important source of fluctuations for macroeconomic
variables: they account for about half of the variance in hours
and investment. However, it is the fourquarter anticipated
productivity shock that is driving a large fraction of
consumption and most of the pricedividend ratio fluctuations.
These productivity news are key for the model to reproduce the
empirical tendency for stockmarket valuations and excess
returns to lead the business cycle. Importantly, a model that
does not use asset price information in the estimation would
downplay the role of productivity news; in this case, the model
implies that return moves (almost) completely contemporaneously
with the economic activity, counterfactually with the data.
