Umang Khetan
Assistant Professor of Finance
University of Chicago Booth School of Business
Research areas: Financial Intermediation; Asset Pricing; Market Structure; Household Finance
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Research Papers
Research Papers
Monetary Policy, Insurers, and Real Estate Markets (draft under preparation)
Co-authors: Sebastian Doerr, Inaki Aldasoro, Ishita Sen
Grants/awards: Best Paper at European Finance Association Doctoral Tutorial; Best Ph.D. Paper at Northern Finance Association
Abstract (click here):
I study how funding market frictions shape the pricing and availability of U.S. dollar credit. Global banks provide much of the world’s dollar credit. Yet, their access to conventional wholesale markets is increasingly constrained by disruptions and tighter regulations. Using transaction-level data to jointly analyze funding markets, I show that foreign exchange swaps emerge as “synthetic” alternatives when wholesale funding becomes scarce. Swaps enable banks to transform foreign currency into dollars while hedging currency risk, but this workaround is costly: a 10% rise in demand raises swap prices by 5 bps, providing a novel demand-driven mechanism for violations of covered interest parity. Through the lens of a bank funding model mapped to my estimates, I find that the resulting increase in intermediation costs ultimately necessitates central bank swap lines to sustain credit supply. This marks a shift from the past, when funding shocks transmitted primarily through contractions in lending.
The Market for Sharing Interest Rate Risk: Quantities and Asset Prices
Co-authors: Jian Li, Ioana Neamtu, Ishita Sen
Revise & Resubmit: Review of Financial Studies
Grants/Awards: Best Paper in Asset Management at Midwest Finance Association; Inquire Europe Research Grant
Coverage: Bank Underground
Abstract (click here):
We provide the first comprehensive characterization of end-user demand and its asset pricing implications for the interest rate swap market. Pension funds and insurers act as natural counterparties to banks and corporations, but their demand is highly segmented by maturity, exposing dealers to maturity-specific imbalances. We estimate demand elasticities using portfolio compression as an instrument, and calibrate a preferred-habitat model to quantify how demand imbalances interact with intermediary constraints to shape the term structure of swap spreads. In policy counterfactuals, we quantify the cross-sector implications of changing hedging mandates, e.g., showing that a decrease in pension funds’ demand worsens banks’ hedging outcomes.
Unemployment Insurance Fraud in the Debit Card Market (NBER Working Paper #32527)
Co-authors: Jetson Leder-Luis, Jialan Wang, Yunrong Zhou
Revise & Resubmit: AEJ: Economic Policy
Abstract (click here):
We study fraud in the unemployment insurance (UI) system using a dataset of 35 million debit card transactions. We apply machine learning techniques to cluster cards corresponding to varying levels of suspicious or potentially fraudulent activity. We then conduct a difference-in-differences analysis based on the staggered adoption of state-level identity verification systems between 2020 and 2021 to assess the effectiveness of screening for reducing fraud. Our findings suggest that identity verification reduced payouts to suspicious cards by 27%, while non-suspicious cards were largely unaffected by these technologies. Our results indicate that identity screening may be an effective mechanism for mitigating fraud in the UI system and for benefits programs more broadly.
Uninformed yet Consequential: Liquidity Shocks in FX Markets
Co-author: Petra Sinagl
Grant: Tippie Research Excellence Grant
Abstract (click here):
We study how retail liquidity shocks impact prices and volumes in the foreign exchange (FX) spot market. We model risk-averse dealers' accumulation of inventory under asymmetric information and incomplete offset across retail clients. Our model predicts that retail liquidity shocks result in inventory imbalances that are transmitted to the inter-dealer segment, increasing price volatility and trading volumes. Using month-end settlement breaks to instrument for uninformed order flow, we empirically validate these predictions: a one-standard-deviation rise in retail net volume increases volatility by 12-22% and inter-dealer volume by 10%, indicating that liquidity-driven demand interacts with intermediary constraints to determine asset prices.
We study the specificity of corporate innovation. Process patents are more specific to the inventing firm. They tend to arise at higher-cost firms, they are more likely to cite past patents of the focal firm and be undertaken by inventors with more focal-firm patenting experience. High process-patent-oriented firms are also less likely to be acquired, but this effect is reversed when there is strong textual overlap between process patent descriptions and the acquirer’s product descriptions. Cost-reduction synergies are greater in such cases as well. Withdrawn attempts to acquire process-oriented targets are followed by increased bidder internal process patenting.
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