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, funding markets, market liquidity, market microstructure, money and banking

Links: Personal Website, CV

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, Assitant 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

  • Krista Schwarz (2018), Mind the Gap: Disentangling Credit and Liquidity in Risk Spreads, Review of Finance, forthcoming.

    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.

  • Andrew Ang, Jun Liu, Krista Schwarz (2018), 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 (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.

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.

  • 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 the News

Knowledge @ Wharton

Activity

In the News

Will New Regulations Avert Another Meltdown?

Wharton experts say that new regulations in the U.S. and Europe since the financial crisis are a good start, but more needs to be done.

Knowledge @ Wharton - 2018/09/12
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