Abstract
I show the new fact that Idiosyncratic volatility significantly predicts the convenience yield. This fact is poses a puzzle with current safe asset theories. I develop a new theory that reconciles this puzzle - a theory I label Safe Asset Demand. Safe Asset Demand explains 29% of future convenience yield variation and is verified in the cross-section of firm treasury holdings. I show that when managers are exposed to moral hazard, corporate demand will be determined by their idiosyncratic risk. I isolate my demand-based effect from confounders by using exogenous cross-sectional variation from corporate size and industry exposures. The results provide support for the importance of corporates as an investor class.
| Original language | English |
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| Publication date | 2022 |
| Publication status | Published - 2022 |
| Event | The 82nd Annual Meeting of American Finance Association. AFA 2022: Part of the ASSA 2022 Virtual Annual Meeting - , WWW Duration: 7 Jan 2022 → 9 Jan 2022 Conference number: 82 https://www.aeaweb.org/conference/ |
Conference
| Conference | The 82nd Annual Meeting of American Finance Association. AFA 2022 |
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| Number | 82 |
| Country/Territory | WWW |
| Period | 07/01/2022 → 09/01/2022 |
| Internet address |