Date of Award

Spring 2021

Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Gorton, Gary


This dissertation consists of three essays on the topics of asset pricing, macrofinance, and financial intermediation. In the first essay, I examine banks’ role in safe asset markets. Banks are vital suppliers of money-like safe assets: banks produce safe assets by issuing short-term liabilities and pledging collateral. But their ability to create safe assets varies over time as leverage constraints fluctuate. I present a model to describe private safe-asset production when intermediaries face leverage constraints. I measure bank leverage constraints using bank-intermediated basis trades. The collateral premium—a strategy long Treasuries used more often as repo collateral and short Treasuries used less often—has a positive expected return of 65 basis points per year because the collateral premium compensates for bank leverage risk. The second essay shows that post-crisis reforms changed the location of safe asset production. I propose a pair of tests to identify who issues safe assets and which safe asset issuers opportunistically time issuance when the price of safe assets is high. Federal agency issuance both responds to day-to-day fluctuations in demand for safe assets—measured via the convenience yield—and is an important determinant in the subsequent price of safe assets. Agencies issue more the day after an unexpected increase in the convenience yield, and an unexpectedly large agency issue decreases the convenience yield the next day. The Federal Home Loan Bank system is a newly crucial safe asset producer. The third essay, coauthored with Landon J. Ross and Sharon Y. Ross study the effect of firm cash holdings on equity returns. U.S. companies hold cash on their balance sheets, and the share of assets held in cash varies across companies and over time. A firm’s cash holdings are an implicit holding in a low-return asset, which pushes down a firm’s equity return. Investors should thus hedge out the cash on the balance sheets when calculating equity returns. We show that neglecting to consider cash holdings results in biases in portfolio optimization, factor creation, and cross-sectional asset pricing. We decompose common stock market betas into components, which depend on the portfolio’s cash holding, the return on cash, and the portfolio’s cash-hedged equity return.