Hello, I'm Umang.

I am a PhD candidate in finance at the University of Iowa, and an academic visitor at the Bank of England. I spent Fall 2024 at the Harvard Business School.

My research interests include financial intermediation, asset pricing, market microstructure, and household finance. Currently, I am studying frictions in the international supply of the US dollar. My other ongoing projects explore the role of financial intermediaries in over-the-counter markets, and information asymmetries in non-intermediated markets.

Before graduate school, I worked at the Fixed Income and Foreign Exchange Markets division of J.P. Morgan, and graduated from the Indian Institute of Management Lucknow.

Here's my CV

Email: umang-khetan@uiowa.edu

Research Papers

[1] The Market for Sharing Interest Rate Risk: Quantities and Asset Prices

Select presentations: AFA, NBER Financial Market Frictions and Systemic Risks, NBER Long-Term Asset Management, European FA, SFS Cavalcade North America, Office of Financial Research Rising Scholars, FMA CBOE Derivatives & Volatility, Midwest FA, Indiana University, Princeton, Columbia, Bank of Canada, Bank of England, Swiss National Bank, Fed Board, AFA 2024 poster.

Grants/Awards: Inquire Europe Research Grant, AFA PhD Travel Grant; MFA Outstanding Paper in Asset Management

Coverage: Bank Underground

Abstract (click here):

We study interest rate risk sharing across the financial system using novel data on cross-sector interest rate swap positions. We show that pension funds and insurers (PF&I) are natural counterparties to banks and corporations: PF&I buy duration, whereas banks and corporations sell duration (figure on the right). However, demand is highly segmented across maturities, resulting in significant imbalances at various maturity points. We calibrate a preferred-habitat investors model with risk-averse arbitrageurs to study how demand imbalances interact with supply side constraints to impact swap spreads. Our framework helps quantify the spillover effects of demand shifts, which informs policy discussions on financial institutions’ hedging requirements.

This figure shows that pension funds and insurers (in green) receive fixed rates using interest rate swaps. On the other hand, banks (in grey) and corporations (in light purple) pay fixed rates. Opposite exposures makes these institutions natural counterparties in the swap market. However, we find a stark maturity segmentation, which strongly impacts asset prices.

[2] Synthetic Dollar Funding

Select presentations: Office of Financial Research PhD Symposium, Federal Reserve Bank of Atlanta (joint with Georgia State University), Fed Board Short-Term Funding Markets, CFTC, Bank for International Settlements, University of Zurich, Midwest FA, AFA 2025 poster.

Grants: AFA PhD Travel Grant, MFA Travel Grant

Abstract (click here):

Global banks rely heavily on US money markets for short-term dollar funding. Yet, post-financial crisis regulations — designed to shield domestic investors from default risk — have constrained banks’ access to this crucial funding source. This paper uses novel quantities data to show that foreign exchange (FX) swaps emerge as alternative (“synthetic”) funding instruments when US money market funds reduce wholesale funding to banks. The resulting shift in banks’ demand for FX swaps leads to substantial deviations from covered interest parity (CIP) – the breakdown of a fundamental no-arbitrage pricing condition. Using an instrumental variables strategy that exploits idiosyncratic variation in the availability of wholesale dollars to banks, I show that (i) banks’ swap demand causes CIP deviations to worsen, and (ii) non-bank investors’ inelastic demand triggers spillover effects on their FX hedging costs. I use my empirical estimates to calibrate a model in which global banks optimally choose FX swaps to offset shortfalls in wholesale funding, generating CIP deviations in equilibrium. My model provides two quantitative insights. First, CIP deviations could be halved by increasing banks’ access to wholesale dollars, but with a 40% increase in default risk for money market funds. Second, a sharp drop in wholesale funding can disrupt global dollar credit as the marginal cost of synthetic dollars quickly outpaces the marginal revenue on bank assets. My findings suggest that regulations aimed at reducing domestic investors' default risk have contributed to the growth of synthetic dollar market, creating externalities in the form of CIP deviations and frictions in bank lending.

This figure correlates the dollar funding gap of non-US banks (excess of dollar assets over liabilities, in red) with deviations from covered interest parity (CIP, in black). When non-US banks face frictions in sourcing US dollars from wholesale funding markets, they turn to the foreign exchange swap market, which worsens deviations from CIP.

[3] Uninformed yet Consequential: Liquidity Shocks in FX Markets

Select presentations: Western Finance Association (WFA), 4th Future of Financial Information Conference, Central Bank Conference in Microstructure of Financial Markets, University of Missouri.

Grant: Tippie Research Excellence Grant, 2021

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.

This figure shows that corporate order flow imbalance (absolute of buy minus sell volume) jumps two days before a month-end, in response to a "T+2" settlement cycle in the FX spot market.

[4] Unemployment Insurance Fraud in the Debit Card Market

NBER Working Paper #32527

Select presentations: American Economic Association (AEA), NBER Public Economics, NBER Innovative Data in Household Finance Conference, MIT Rising Scholars Conference, Georgetown University, Midwest FA.

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.

This figure shows that unemployment insurance benefits disbursed to suspicious cards declined after the introduction of identity verification measures.

[5] Innovation Specificity

Select presentations: Midwest FA, Northern FA, Eastern FA, FMA, University of Iowa.

Abstract (click here):

We study the composition of firms' innovation portfolios by machine-reading 90 million patent claims. Process-oriented patents fundamentally differ from other patents in terms of both motive and specificity: they are cost-savings-oriented, and they are rooted in firm-specific knowledge. On the former, process-oriented patents are more likely when the firm recently experienced higher costs relative to sales. To support the latter we offer several results. Process patents are more likely to cite past patents of the innovating firm, and they are undertaken by inventors who have more within-firm patenting experience. They also exploit known technologies rather than explore new ones. Finally, inventors with a greater fraction of their patents dedicated to process, are less likely to change firms. Process patents are also valued differentially in a way that reflects their specificity. Using the market for corporate control as a setting to assess the external value of innovation, we show that firms with a higher share of process patents in their innovation portfolios are significantly less likely to be acquired. Consistent with the specificity explanation, this effect reverses when there is a strong textual overlap between process patent descriptions and the acquirer’s product descriptions, indicating greater redeployability of innovation. When such overlap exists, acquisition announcement returns are also higher, and post-merger synergies—reflected in lower costs and higher operating margins—are more likely to materialize. Our study introduces a novel measure of innovation specificity and demonstrates its construct validity as well as its role in the market for corporate control.

This figure shows that patents that seek to achieve process improvements, as opposed to the creation of new products, constitute 20-30% of all patents filed in the United States.

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