Jan Wrampelmeyer

Associate Professor of Finance at VU Amsterdam ……………….. Current information about me and my research activities

About Me

Research

Data

New paper “Fragility of Money Markets”

I have a new paper on “Fragility of Money Markets” (with Angelo Ranaldo and Matthias Rupprecht).
We provide the first comprehensive theoretical model for money markets encompassing unsecured and secured funding, asset markets, and central bank policy. Capital-constrained, leveraged banks invest in assets and raise short-term funds by borrowing in the unsecured and secured money markets. Our model derives how funding liquidity across money markets is related, explains how a shock to asset values can lead to mutually reinforcing liquidity spirals in both money markets, and shows how borrowers’ flight-to-safety and risk-seeking behavior impacts their liability structure. We derive the socially optimal leverage and funding structure and show which combination of conventional and unconventional monetary policies and regulatory measures can reduce money market fragility.

The paper is available on SSRN.

Publication “The Euro Interbank Repo Market”

The paper “The Euro Interbank Repo Market” has been accepted and is now forthcoming in The Review Of Financial Studies. The corrected proof is available on the publisher’s website. You can still find the last working paper version of the paper on SSRN.

Abstract:
The search for a market design that ensures stable bank funding is at the top of regulators’ policy agenda. This paper empirically shows that the central counterparty (CCP)-based euro interbank repo market features this stability. Using a unique and comprehensive data set, we show that the market is resilient during crisis episodes and may even act as a shock absorber, in the sense that repo lending increases with risk, while spreads, maturities, and haircuts remain stable. Our comparison across different repo markets shows that anonymous CCP-based trading, safe collateral, and the absence of an unwind mechanism are the key characteristics to ensure market resilience.

Completely revised working paper

Today, I uploaded a completely revised version of my working paper with Fabio Trojani and Christian Wiehenkamp on SSRN. The new title is “Ambigutiy and Reality”.

Abstract:
Model builders face ambiguity about the true data generating process. Consequently, they need to deal with ambiguity attitudes (inside uncertainty) and ambiguous financial reality (outside uncertainty) when developing and estimating financial models. We introduce a novel approach for systematically dealing with outside uncertainty in addition to inside uncertainty in a tractable way. By bounding the effects of ambiguous data features, we avoid the adverse consequences of outside uncertainty, such as strongly biased equity premiums and investment policies. In a real data application, we show that asset managers can be more reliably evaluated using our bounded-influence approach.

You can download the full paper on SSRN.

Updated version of working paper on “The Euro Interbank Repo Market”

A new version of our repo paper on “The Euro Interbank Repo Market” is available.

Abstract:
The search for a market design that ensures stable bank funding is at the top of regulators’ policy agenda. This paper empirically shows that an important part of the European money market features this quality, namely the central counterparty (CCP)-based euro interbank repo market. Using a unique and comprehensive data set, we provide the first systematic study of this market and show that it functions well, even during crisis episodes. CCP-based repos secured with high-quality collateral even act as a shock absorber, in the sense that repo lending increases with risk, while spreads, maturities, and haircuts remain stable.

You can download the full paper on SSRN.