Matthias Fleckenstein Assistant Professor of Finance
University of Delaware
Lerner College of Business and Economics
310 Purnell Hall, Newark, Delaware 19716
Phone: (302) 831-4936
Email: mflecken@udel.edu
Website: http://www.mfleckenstein.com
Employment
Lerner College of Business and Economics, University of Delaware
Assistant Professor of Finance, 2016 – Present.
Cornerstone Research, New York
Associate, 2013 – 2016.
Education
University of California at Los Angeles (UCLA)
Ph.D. in Finance, 2013.
Georgia Institute of Technology (Georgia Tech)
M.S. in Quantitative and Computational Finance, 2007.
Master of Business Administration (MBA), 2007.
University of Technology Berlin, Germany
M.S. in Industrial Engineering and Business Administration. 2005.
Journal of Financial Economics. 2020. Forthcoming.
Abstract:
We show that at-the-money implied volatility of options on futures of 5-year Treasury notes (Treasury ‘yield implied volatility’) predicts both the growth rate and volatility of gross domestic product, as well as of other macroeconomic variables, like industrial production, consumption, and employment. This predictability is robust to controlling for the term spread, credit spread, stock returns, stock market implied volatility, and several other variables that prior literature showed to predict macroeconomic activity. Our results indicate that Treasury yield implied volatility is a useful forward-looking state variable to characterize risks and opportunities in the macro economy.
Abstract:
A long-standing asset pricing puzzle is that the funding rates in derivatives contracts often differ from those in cash markets. We propose that the cost of renting intermediary balance sheet space may help resolve this puzzle. We study a persistent basis in what is arguably the largest derivatives market, namely, the interest rate futures market. This basis is strongly related to exogenous measures of intermediary balance sheet usage and proxies for the balance sheet costs imposed by debt overhang problems and capital regulation. These results extend to the cash derivatives bases documented in many of the other largest financial markets.
Journal of Financial Economics. 2020. Vol. 137(3), p. 637–658.
Abstract: We find that Treasury floating rate notes (FRNs) trade at a significant premium relative to the prices of Treasury bills and notes. This premium is directly related to the near-constant nature of FRN prices and is correlated with measures reflecting investor demand for safe assets. Money market funds are often the primary investors in FRNs, and the FRN premium is related to flows into funds with fixed net asset values, but not to flows into funds with variable net asset values. These results provide strong evidence that the FRN premium represents a convenience yield for the mark-to-market stability feature of FRNs.
Critical Finance Review. 2020. Vol. 9: No. 1–2, p. 1-28.
Abstract: We study the time series relation between leverage and corporate tax rates using an extensive data set constructed from all corporate income tax returns filed with the Internal Revenue Service from 1926 to 2013. This data set includes financial statement data from millions of private and public corporations. We find strong evidence that changes in corporate leverage are directly related to changes in corporate tax rates for all but the smallest firms. These results are robust to the inclusion of control variables for the costs of financial distress, corporate liquidity, and capital market and macroeconomic conditions. Furthermore, the results hold for both financial and nonfinancial firms as well as for different measures of firm leverage and the marginal corporate income tax rate. An increase in the marginal corporate tax rate of 1% translates into a 0.15% increase in corporate leverage, representing a $132 billion increase in aggregate leverage based on current values.
Review of Financial Studies. 2017. Vol. 30(8), p. 2719–2760.
Abstract: We study the nature of deflation risk by extracting the objective distribution of inflation from the market prices of inflation swaps and options. We find that the market expects inflation to average about 2.5% over the next 30 years. Despite this, the market places substantial weight on deflation scenarios in which prices significantly decline over extended horizons. The market prices the economic tail risk of deflation similarly to other types of tail risks, such as corporate default or catastrophic insurance losses. We find that deflation risk is strongly negatively correlated with outcomes in the financial markets and with consumer confidence.
Journal of Finance. 2014. Vol. 69(5), p. 2151–2197.
Winner of the Amundi Smith Breeden Award 2014
Abstract: We show that the price of a Treasury bond and an inflation‐swapped Treasury Inflation‐Protected Securities (TIPS) issue exactly replicating the cash flows of the Treasury bond can differ by more than $20 per $100 notional. Treasury bonds are almost always overvalued relative to TIPS. Total TIPS‐Treasury mispricing has exceeded $56 billion, representing nearly 8% of the total amount of TIPS outstanding. We find direct evidence that the mispricing narrows as additional capital flows into the markets. This provides strong support for the slow‐moving‐capital explanation of arbitrage persistence.
Abstract: We use the prices of credit card asset backed securities to study the market risk premium associated with unsecured consumer credit risk. The consumer credit risk premium has historically been comparable to high yield corporate bond spreads, but has increased dramatically since the financial crisis. We find evidence that this increase is primarily due to balance-sheet costs imposed by recent changes in regulatory capital requirements which have effectively placed credit card securitizations back onto issuer balance sheets. These changes in capital regulation may have added hundreds of basis points to the cost of unsecured household credit.
Abstract: Little is known about how the risk of unexpected changes in tax policy is priced in financial markets. We measure how tax risk affects asset prices using a novel dataset of taxable and tax-exempt corporate bonds in the 19th century, and the introduction of federal taxes as a natural experiment. Our tax risk measure is derived from bonds with a tax-exempt clause that requires firms to pay coupons to investors in full, and to pay investors’ taxes on coupons. Tax risk is pro-cyclical and is priced in the cross-section of asset returns with a statistically and economically significant positive risk premium.
Web of Science Published citing published: 61 (as of July 2020) Cited references: 84 (as of January 2020)
Conferences
Invited Seminars and Conference Presentations
Renting Balance Sheet Space: Intermediary Balance Sheet Rental Costs and the Valuation of Derivatives
Conferences
Drexel, Lehigh, Temple and University of Delaware Research Symposium (Philly 5) 2017; Eastern Finance Association Annual Meeting 2018; Duke/University of North Carolina Asset Pricing Conference 2018; 7th Fixed Income and Financial Institutions Conference (FIFI); Canadian Derivatives Institute (CDI) Seventh Conference on Derivatives 2018; Paris Financial Management Conference 2019; Midwest Finance Association Annual Conference 2020
Seminars
University of Delaware, Claremont Graduate University† Commodity Futures Trading Commission (CFTC)†; Virtual Derivatives Workshop†; Federal Reserve Bank of San Francisco†
The Treasury Floating Rate Note Puzzle: Is there a premium for mark-to-market stability
Conferences
Paris Financial Management Conference 2018; Laboratory for Aggregate Economics and Finance (LAEF) Over-the-counter Markets and Securities Workshop at the University of California Santa Barbara 2018†; Fixed Income and Financial Institutions Conference at the University of South Carolina 2019; Midwest Finance Association Annual Conference 2019; Society for Financial Studies (SFS) Cavalcade 2019; Drexel, Lehigh, Temple and University of Delaware Research Symposium (Philly 5) 2019; 17th Paris December Finance Meeting 2019
Seminars
University of California at Los Angeles†; University of Wisconsin-Madison; Temple University; McGill University†
Corporate Taxes and Capital Structure: A Long-Term Historical Perspective
Seminars
U.S. Securities and Exchange Commission†; University of California at Los Angeles†
Deflation Risk
Conferences
American Economic Association Meetings in Philadelphia 2014†; Montr{'e}al Institute of Structured Finance and Derivatives Conference 2014†; Q Group Conference 2015†
Seminars
University of California at Berkeley†; Columbia University†; University of Oklahoma†; New York University†; University of Texas at Dallas†; Wharton School at the University of Pennsylvania†
The TIPS–Treasury Bond Puzzle
Conferences
National Bureau of Economic Research Asset Pricing Conference Spring 2011†; 6th Annual Central Bank Workshop on the Microstructure of Financial Markets†; Western Finance Association Conference 2011†
Seminars
AQR Capital Management†; Armored Wolf LLC†; Blackrock Investment Management†; Federal Reserve Bank of New York†; Federal Reserve Bank of San Francisco†; Kepos Capital†; Massachusetts Institute of Technology†; University of California at Los Angeles†
Treasury Yield Implied Volatility and Real Activity
Seminars
Northeastern University†; Rutgers Business School†; University of Georgia†; University of Notre Dame†
Tax Policy Uncertainty and Asset Prices: Evidence from Dual-class Corporate Bonds in the Early 20th Century
Conferences
Florida State University SunTrust Beach Conference 2018†; ASSA/AFA Annual Meeting 2020†; Midwest Finance Association Annual Conference 2020
Seminars
University of Notre Dame†; Rutgers University†
* Includes scheduled presentations; † Presented by co-author.
Invited Discussions
Paris December Finance Meeting 2019
Overcoming Arbitrage Limits: Option Trading and Momentum Returns
(by A. Abhyankar, I. Filippou, P. A. Garcia-Ares, and O. Haykir)
Paris Financial Management Conference 2019
Price bias and common practice in option Pricing
(by J.-F. Bégin and G. Gauthier)
Northern Finance Association Meeting 2019
Default Risk and the Pricing of U.S. Sovereign Bonds (by R. Dittmar, A. Hsu, G. Roussellet, P. Simasek)
Midwest Finance Association Annual Conference 2019
A Result and Finding to Differentiate Among Models of Term-Structure and Interest-Rate Claims
(by G. Bakshi, J. Crosby, X. Gao Bakshi)
Paris Financial Management Conference 2018
A Day Late and a Dollar Short: Liquidity and Household Formation among Student Borrowers
(by S. Goodman, A. Isen, and C. Yannelis)
2nd Short-Term Funding Markets Conference
Liquidity Risk and Funding Cost
(by A. Bechtel, A. Ranaldo, and J. Wrampelmeyer)
Eastern Finance Association Annual Meeting 2018
R&D Investment Intensity and Jump Volatility of Stock Prices
(by C. Jiang, J. Kose, and D. Larsen)
Paris Financial Management Conference 2017
The Volatility-of-Volatility Term Structure
(by N. Brager, H. H{"u}lsbusch, and A. Kraftschnik)
Northern Finance Association Conference 2017
Basel III LCR: A Regulatory Shock on a Bank and Beyond
(by Y. K. Gam)
Western Finance Association Annual Meeting 2016
The Invisible Hand of the Government: Moral Suasion During the European Debt Crisis
(by A. Popov, S. Ongena, and N. van Horen)
* Includes scheduled discussions
Teaching
University of Delaware (Instructor)
FINC 313: Fixed Income Securities (Undergraduate; Spring 2017, 2018, 2019, 2020)
FINC 862: Fixed Income Securities (MS; Spring 2017, 2018, 2020)
UCLA (Teaching Assistant)
MGMT 232A: Security Analysis and Investment Management (MBA; Spring 2011)
MGMT 231C: Corporate Valuation (MBA; Winter 2011, Spring 2011, Fall 2011, Spring 2012)
MGMT 237J: Asset-Backed Securities (MFE; Fall 2009, Fall 2011)
MGMT 2387K: Introduction to Credit Markets (MFE; Fall 2011)
MGMT 408: Securities Markets and Investments (MBA, FEMBA; Spring 2009, Fall 2009)
Other
Honors and Awards
University of Delaware, 2020 Lerner College Outstanding Junion Faculty Award
Amundi Smith Breeden Distinguished Paper Award 2014
for The Tips-Treasury Bond Puzzle
Naumann–Etienne Foundation (2005–2007) Georgia Tech Full Scholarship
University of Delaware Lerner College of Business and Economics (2017, 2018) Summer Research Grant
UCLA (2008–2010) UCLA Anderson School of Management Summer Doctoral Fellowship
Professional Activity
Referee
American Economic Review; Financial Management; Finance Research Letters; International Finance; Journal of Banking & Finance; Journal of Economic Dynamics, and Control; Journal of Empirical Finance; Journal of Finance; Journal of Financial Intermediation; Journal of Financial and Quantitative Analysis; Journal of Monetary Economics; Journal of Money, Credit, and Banking; Management Science; Review of Asset Pricing Studies; Review of Economics and Statistics; Review of Finance; Review of Financial Studies
Conference Program Committee
2nd Short-Term Funding Markets Conference; Northern Finance Association 2019
Conference Session Chair
ASSA Annual Meeting 2017 (Liquidity and Trading in Bond and Derivatives Markets I); Paris Financial Management Conference 2017 (Financial Engineering and Derivatives I)
Professional Membership
American Finance Association; American Economic Association; Western Finance Association; European Finance Association; Society for Financial Studies; Financial Management Association; Midwest Finance Association; Northern Finance Association
University Service
Faculty Recruiting Committee; FinTech Committee; M.S. Finance Program Committee
Additional Information
Programming Languages and Software: C/C++, Julia, Matlab, Python, SAS, Stata
Citizenship: United States, Germany
Languages: English, French, German (native)
Biography
I am Assistant Professor of Finance at the University of Delaware. My research interests include the role of arbitrage in financial markets, fixed income markets, term structure theory, derivative securities, and credit risk.
My research has been published in top finance journals including the Journal of Finance, the Review of Financial Studies, and the Journal of Financial Economics. Several of my recent research papers have focused on frictions in financial markets that give rise to violations of the law of one price.
My joint work with Francis A. Longstaff and Hanno Lustig on the U.S. Treasury bond and Treasury Inflation Protected Securities (TIPS) markets was awarded the 2014 Amundi Smith Breeden, and was featured in the Financial Times, and the Economist. I am a frequent speaker at academic conferences, practitioner seminars, and regulatory agencies (CFTC).
Prior to joining the University of Delaware, I worked as Associate at Cornerstone Research in New York on legal cases involving the valuation of over-the-counter and exchange-traded financial securities, including credit default swaps, foreign exchange and interest rate derivatives, and commodity-linked instruments.
I have a Ph.D. in Finance from the Anderson School at UCLA, and also Masters’ Degrees in Financial Engineering, Business Administration (MBA), and Industrial Engineering. I have experience teaching at the undergraduate, MBA, and executive education levels.
