Krista Schwarz

Krista Schwarz
  • Assistant Professor of Finance
  • Cynthia and Bennett Golub Endowed Faculty Scholar Award

Contact Information

  • office Address:

    Finance Department, Wharton
    University of Pennsylvania
    3620 Locust Walk, SH-DH 2400
    Philadelphia, PA 19104

Research Interests: empirical asset pricing, market efficiency, funding markets, liquidity, microstructure, money and banking

Links: Personal Website, c.v.

Overview

Education

Ph.D. in Finance and Economics, Columbia University, New York, NY, 2010.

M.A. in Finance and Economics, Columbia University, New York, NY, 2009.

M.A., Johns Hopkins University, SAIS (School for Advanced International Studies), Washington, D.C.

B.A., Trinity College, Hartford, CT.

Academic Positions Held

Wharton, Assistant Professor of Finance: 2010-present.

Other Positions

Federal Reserve Bank of New York, Domestic Repo and Money Market Desk, New York, NY (2003-2005).

Federal Reserve Board, International Finance Research Division, Washington, DC. (Fall 2003).

Federal Reserve Bank of New York, Foreign Exchange & Invesments Desk, New York, NY (1999-2003).

The World Bank, MIGA (Mulilateral Investment Guarantee Association), Washington, D.C. (Summer 1999).

The European Commission, ECFIN (Directorate General for Financial Affairs), Luxembourg City, Luxembourg (1998-1999).

U.S. State Department, Economics Bureau, U.S. Embassy, Berlin, Germany (Summer 1998).

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Research

  • Andrew Ang, Jun Liu, Krista Schwarz (2020), Using Stocks or Portfolios in Tests of Factor Models, Journal of Financial and Quantitative Analysis, forthcoming.

    Abstract: We examine the efficiency of using individual stocks or portfolios as base assets to test asset pricing models using cross-sectional data. The literature has argued that creating portfolios reduces idiosyncratic volatility and allows more precise estimates of factor loadings, and consequently risk premia. We show analytically and empirically that smaller standard errors of portfolio beta estimates do not lead to smaller standard errors of cross-sectional coefficient estimates. Factor risk premia standard errors are determined by the cross-sectional distributions of factor loadings and residual risk. Portfolios destroy information by shrinking the dispersion of betas, leading to larger standard errors.

  • Krista Schwarz and Jonathan Hartley, Predictable End-of-Month Treasury Returns.

    Abstract: We document a distinct pattern in the timing of excess returns on coupon Treasury securities. Average returns are positive and highly significant in the last few days of the month, and are not significantly different from zero at other times. A long Treasury position for just the last few days of each month gives a high annualized Sharpe ratio of around 1. We attribute this pattern to temporary spikes in investor demand for specific securities due to window dressing and portfolio rebalancing. We find evidence in quantities that aggregate insurer transactions contribute to the end-of-month price pattern. In particular life insurers are large net buyers of Treasury securities on benchmark index rebalancing dates.

  • Krista Schwarz (2019), Mind the Gap: Disentangling Credit and Liquidity in Risk Spreads, Review of Finance, 23 (3), pp. 557-597.

    Abstract: Euro-area sovereign bond and interbank interest rate spreads widened sharply in the 2007-2009 Global Financial Crisis and over the subsequent European Debt Crisis, greatly increasing financing costs. Such rate volatility could represent concerns over asset liquidity or issuer solvency. To precisely identify the relative contribution of these two effects in interest rate spreads, this paper uses a model-free measure of euro-area bond market liquidity. Liquidity accounts for 36% of the trough-to-peak sovereign spread widening during the Financial Crisis and 21% in the Debt Crisis, after controlling for default risk. Aggregate bond liquidity also explains a substantial portion of interbank spreads.

  • Krista Schwarz, David Musto, Greg Nini (2018), Notes on Bonds: Illiquidity Feedback During the Financial Crisis, Review of Financial Studies , 31 (8), pp. 2983-3018.

    Abstract: We trace the evolution of extreme illiquidity discounts among Treasury securities during the financial crisis, when bond prices fell more than 6% below more liquid but otherwise identical notes. Using high-resolution data on market quality and trader identities and characteristics, we find that the discounts amplify through feedback loops, where cheaper, less-liquid securities flow to longer-horizon investors, thereby increasing their illiquidity and thus their appeal to these investors. The effect of the widened liquidity gap on transactions costs is further amplified by a surge in the price liquidity providers charge for access to their balance sheets in the crisis.

  • Krista Schwarz (2012), Are Speculators Informed?, Journal of Futures Markets, 32 (1), pp. 1-23.

    Abstract: The positions of hedgers and speculators are correlated with returns in a number of futures markets, but there is much debate as to the interpretation of such a relationship—whether it reflects private information, liquidity, or trend-chasing behavior. This paper studies the relationship between positioning of hedgers and speculators and returns in equity futures markets. I propose a novel test of the private information hypothesis: analyzing the effect of public announcements about futures positions on prices, using high-frequency data in short windows around the announcements. I find that the revelation of speculators’ positions is informative to investors more broadly, supporting the private information view.

  • Krista Schwarz, Leonardo Bartolini, Spence Hilton, Svenja Gudell (2005), Intra-day Trading in the Overnight Federal Funds Market,.

    Abstract: Transaction-level data for the federal funds market provide a rare look at the intraday behavior of trade volume and prices. An analysis of the data reveals that trade volume exhibits large swings over the course of the day while prices remain fairly stable, with rate volatility rising sharply only in the late afternoon. The analysis underscores the important role played by institutional deadlines—most notably, the close of trading—in driving movements in this market.

  • Krista Schwarz, Sergey Chernenko, Jonathan Wright (2004), The Information Content of Forward and Futures Prices: Market Expectations and the Price of Risk,.

    Abstract: Forward and futures rates are frequently used as measures of market expectations. In this paper we apply standard forecast efficiency tests, and some newer exact sign and rank tests, to a wide range of forward and futures rates, and in this way test whether these are in fact rational expectations of future actual prices. The forward and futures rates that we study under a common methodology include foreign exchange forward rates, U.S. and foreign interest rate futures and forward rates, oil futures, and natural gas futures. For most, but not all, of these instruments, we find that we can reject the hypothesis that the forward or futures rates are rational expectations of actual future prices. It is well known that foreign exchange forward rates give less accurate forecasts than a random walk, but we show that this is also true for some interest rate futures and forward rates. We conclude that forward and futures prices are not generally pure measures of market expectations. They are also heavily affected by the market price of risk.

Teaching

Past Courses

  • FNCE238 - CAPITAL MARKETS

    The objective of this course is to give you a broad understanding of the framework and evolution of U.S. capital markets, the instruments that are traded, the mechanisms that facilitate their trading and issuance, and the motivations of issuers and investors across different asset classes. The course will highlight the problems that capital market participants are seeking to solve, which you can use in your post-Wharton careers to evaluate future market innovations. We will consider design, issuance, and pricing of financial instruments, the arbitrage strategies which keep their prices in-line with one another,and the associated economic and financial stability issues. We will draw from events in the aftermath of the recent financial crisis, which illustrate financing innovations and associated risks, as well as policy responses that can change the nature of these markets. In addition to course prerequisites, FNCE 101 is recommended.

  • FNCE738 - CAPITAL MARKETS

    The objective of this course is to give you a broad understanding of the instruments traded in modern financial markets, the mechanisms that facilitate their trading and issuance, as well as, the motivations of issuers and investors across different asset classes. The course will balance functional and institutional perspectives by highlighting the problems capital markets participants are seeking to solve, as well as, the existing assets and markets which have arisen to accomplish these goals. We will consider design, issuance, and pricing of financial instruments, the arbitrage strategies which keep their prices in-line with one another, and the associated economic and financial stability issues. The course is taught in lecture format, and illustrates key concepts by drawing on a collection of case studies and visits from industry experts. In addition to prerequisites, FNCE 613 may be taken concurrently.

  • FNCE899 - INDEPENDENT STUDY

    Independent Study Projects require extensive independent work and a considerable amount of writing. ISP in Finance are intended to give students the opportunity to study a particular topic in Finance in greater depth than is covered in the curriculum. The application for ISP's should outline a plan of study that requires at least as much work as a typical course in the Finance Department that meets twice a week. Applications for FNCE 899 ISP's will not be accepted after the THIRD WEEK OF THE SEMESTER. ISP's must be supervised by a Standing Faculty member of the Finance Department.

Awards and Honors

  • Jacobs Levy Center, Research Paper Prize for Outstanding Paper, 2017-2018
  • NASDAQ OMX, Research Foundation Fellow, 2009-2010
  • Wharton Public Policy Initiative, Research Assistance Award, 2013-2018
  • Cynthia and Bennett Golub, Endowed Faculty Scholar Award, 2014-2015
  • The Wharton School, Dean’s Research Fund Award, 2009-2011
  • Inquire Europe, Grant, 2009-2010

In the News

Knowledge @ Wharton

Activity

Latest Research

Andrew Ang, Jun Liu, Krista Schwarz (2020), Using Stocks or Portfolios in Tests of Factor Models, Journal of Financial and Quantitative Analysis, forthcoming.
All Research

In the News

Will Christine Lagarde Have Room to Run As the ECB’s Next President?

Chirstine Lagarde is a shoo-in to become the next president of the European Central Bank. But will a straitjacket of low-to-negative interest rates give her any room to maneuver?

Knowledge @ Wharton - 2019/07/23
All News

Awards and Honors

Jacobs Levy Center, Research Paper Prize for Outstanding Paper 2019
All Awards