Matthias Fleckenstein
Associate 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
  Associate Professor of Finance, 2022 – Present.

• Lerner College of Business and Economics, University of Delaware
  Assistant Professor of Finance, 2016 – 2022.

• 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.

Research

Published and Forthcoming Papers

• Treasury Richness
  • With Francis A. Longstaff
  • Accepted at Journal of Finance.
  • NBER Working Paper 29081, 2021.

  • UCLA Anderson Review, Research Brief, featured article August 18, 2021.

    Abstract
    We provide estimates of Treasury convenience premia across the entire term structure of Treasury bills, notes, and bonds over more than a quarter of a century and document a variety of key stylized facts about their time-series and cross-sectional patterns. These results raise concerns about the evolving nature of Treasury markets and suggest that investors may now place less weight on the traditional role of Treasury securities as liquid trading vehicles. These stylized facts provide empirical benchmarks that could help guide future theoretical and empirical work about the economics of safe assets in financial markets.

• Private Equity Returns: Empirical Evidence from the Business Credit Card Securitization Market (2023)
  • With Francis A. Longstaff
  • Journal of Finance, Volume 78, Issue 1, February 2023.
  • NBER Working Paper 28134, 2020.

  • UCLA Anderson Review, Research Brief, featured article July 28, 2021.

    Abstract
    We present a new approach for estimating private equity returns using secondary market prices for entrepreneurial business credit card securitizations. We show that the market requires a significantly higher premium for entrepreneurial credit risk than for household credit risk. Entrepreneurial risk is systematic in nature and has much in common with risks in corporate bond and real-estate-backed lending markets. The expected return on private equity is on the order of 14 percent and the volatility of private equity returns is comparable to that of the smallest quintile of publicly traded firms.

• The Market Risk Premium for Unsecured Consumer Credit Risk (2022)
  • With Francis A. Longstaff
  • Review of Financial Studies, Volume 35, Issue 10, October 2022, 4756–4801.
  • NBER Working Paper 28029, 2020.
  • NBER Featured Working Papers, January 14, 2021.

  • UCLA Anderson Review, Research Brief, featured article December 16, 2020.

    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.

• Treasury Yield Implied Volatility and Real Activity (2021)
  • With Priyank Gandhi and Martijn Cremers

  • Journal of Financial Economics, Volume 140, Issue 2, May 2021, 412–435.

    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.

• Renting Balance Sheet Space: Intermediary Balance Sheet Rental Costs and the Valuation of Derivatives (2020)
  • With Francis A. Longstaff
  • Review of Financial Studies, Volume 33, Issue 11, 2020, 5051–5091.

  • UCLA Anderson Review, Research Brief, featured article November 17, 2021.

    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.

• The Treasury Floating Rate Note Puzzle: Is there a Premium for Mark-to-Market Stability? (2020)
  • With Francis A. Longstaff

  • Journal of Financial Economics, Volume 137, Issue 3, 2020, 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.

• Corporate Taxes and Capital Structure: A Long-Term Historical Perspective (2020)
  • With Francis A. Longstaff and Ilya A. Strebulaev

  • Critical Finance Review, Volume 9: No. 1–2, 2020, 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.

• Deflation Risk (2017)
  • With Francis A. Longstaff and Hanno Lustig

  • Review of Financial Studies, Volume 30, Issue 8, 2017, 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.

• The TIPS–Treasury Bond Puzzle (2014)
  • With Francis A. Longstaff and Hanno Lustig
  • Journal of Finance, Volume 69, Issue 5, 2014, 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.

Non-Refereed Publications

• Inflation Adjusted Bonds and the Inflation Risk Premium
  • With Francis A. Longstaff and Hanno Lustig
  • Handbook of Fixed-Income Securities. 2016. Wiley & Sons.

Working Papers

• Do Municipal Bond Investors Pay a Convenience Premium to Avoid Taxes?
  • With Francis A. Longstaff
  • Revise and Resubmit at Journal of Financial Economics.
  • NBER Working Paper 31389, 2023.
  • The Wall Street Journal

  • UCLA Anderson Review, Research Brief, featured article August 2, 2023.

    Abstract
    We study the valuation of state-issued tax-exempt municipal bonds and find that there are significant convenience premia in their prices. These premia parallel those identified in Treasury markets. We find evidence that these premia are tax related. Specifically, the premia are related to measures of tax and fiscal uncertainty, forecast flows into state municipal bond funds, and are directly linked to outmigration from high-tax to low-tax states and to other measures of tax aversion such as IRA and retirement plan contributions. These results suggest that investors are willing to pay a substantial premium to avoid taxes.

• Is Maturity Transformation Risk Priced Into Bank Deposit Rates?

  • With Francis A. Longstaff

    Abstract
    We use the term structure of bank CD rates to examine whether maturity-transformation risk is priced into the rates banks offer customers. We find that depositors pay a significant cost for the liquidity provided by bank deposits. This cost is strongly related to the amount of maturity-transformation risk that these deposit accounts create. The cost is also negatively correlated with the convenience premia in Treasury markets, which suggests that households do not view deposit liquidity and Treasury liquidity as perfect substitutes. The results have important implications about the role of deposit franchises and market power in banking markets.

• Tax Policy Uncertainty and Asset Prices: Evidence from Dual-class Corporate Bonds in the Early 20th Century
  • With Priyank Gandhi and Pengjie Gao

  • Working Paper. 2020.

    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.

Work in Progress

• Why do banks misprice CDs? (Preliminary)

  Abstract
  We study deposit pricing from a completely new perspective. In particular, we show that banks often offer term structures of CD rates in which the rates for some tenors are actually dominated and should not be accepted by any value-maximizing depositor. By exploring the potential reasons for this relative mispricing, our goal is to shed new light on the underlying factors that drive deposit pricing by banks.

Citations

• Google Scholar 667 (as of April 2023)
• Web of Science Cited references: 151 (as of July 2023)

Conferences

Invited Seminars and Conference Presentations

• Is Maturity Transformation Risk Priced Into Bank Deposit Rates?
  • Seminars
    Korea University Business School†
• Do Municipal Bond Investors Pay a Convenience Premium to Avoid Taxes?
  • Conferences
    EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Fixed Income and Financial Institutions (FIFI) Conference 2023
  • Seminars
    Universidad de Navarra, Virtual Municipal Finance Workshop, BYU Marriott School of Business†, NYU Stern School of Business†, UCLA†, University of Virginia Darden School of Business†
• Treasury Richness
  • Seminars
    UCLA†, PBC School of Finance at Tsinghua University†, Fixed Income Forum 2022 (Santa Barbara)†, The Linde Institute at the California Institute of Technology†, Trulaske College of Business at the University of Missouri†
• The Market Risk Premium for Unsecured Consumer Credit Risk
  • Conferences
    Western Finance Association (WFA) 2021†, Midwest Finance Association Annual Meeting 2021, Easter Finance Association Annual Meeting 2021
• 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
  • Conferences
    Paris Financial Management Conference 2017; ASSA Annual Meeting 2018; IFSID Sixth Annual Conference 2018†
  • 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

• Financial Intermediation Research Society (FIRS) Conference 2024

  LTCM Redux? Hedge Fund Treasury Trading and Funding Fragility (by Mathias S. Kruttli, Phillip J. Monin, Lubomir Petrasek, and Sumudu W. Watugala)

• EUROFIDAI-ESSEC Paris December Finance Meeting 2023

  Robust difference-in-differences analysis when there is a term structure (by Kjell G. Nyborg and Jiri Woschitz)

• Fixed Income and Financial Institutions (FIFI) Conference (2022)

  Intermediary Balance Sheets and the Treasury Yield Curve (by Wenxin Du, Benjamin Hébert, Wenhao Li)

• Eastern Finance Association (2021)

  Does Liquidity Management Induce Fragility in Treasury Prices? Evidence from Bond Mutual Funds (by Shiyang Huang, Xiaoxi Liu, Xin Liu, Wenxi Jiang)

• Chicago Financial Institutions Conference (2020)

  Zombie Credit and (Dis)-Inflation: Evidence from Europe (by Viral V. Acharya, Matteo Crosignani, Tim Eisert, Christian Eufinger)

• 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 (2018)

  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)
  • UD/ISCTE-IUL Trading and Bloomberg Program (2024): Seminar on the TIPS-Treasury Bond Puzzle
  • FINC 672: Workshop in Finance - Empirical Research (MS; Spring 2024)
  • FINC 462: Fixed Income Securities (Undergraduate; Spring 2024)
  • FINC 662: Fixed Income Securities (MS; Spring 2024)
  • UD/ISCTE-IUL Trading and Bloomberg Program (2023): Seminar on the TIPS-Treasury Bond Puzzle
  • FINC 672: Workshop in Finance - Empirical Research (MS; Spring 2023)
  • FINC 462: Fixed Income Securities (Undergraduate; Spring 2023)
  • FINC 662: Fixed Income Securities (MS; Spring 2023)
  • UD/ISCTE-IUL Trading and Bloomberg Program (2022): Seminar on the TIPS-Treasury Bond Puzzle
  • Seminar on the TIPS-Treasury Bond Puzzle for the SWUFE-UD Joint Institute (2022)
  • FINC 672: Workshop in Finance - Empirical Research (MS; Spring 2022)
  • FINC 462: Fixed Income Securities (Undergraduate; Spring 2022)
  • FINC 662: Fixed Income Securities (MS; Spring 2022)
  • FINC 314: Investments (Undergraduate; Spring 2021)
  • FINC 662: Fixed Income Securities (MS; Spring 2021)
  • FINC 462: Fixed Income Securities (Undergraduate; Spring 2021)
  • 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 (2022–) Institute for Financial Services Analytics (IFSA) Affiliated Faculty
• University of Delaware (2022–) SWUFE-UD Joint Institute Fellow
• 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

Service to the Profession

• Referee
  American Economic Review; Applied Economic Letters; Economics Letters; Financial Management; Finance Research Letters; Financial Review; International Finance; Journal of Banking and Finance; Journal of Economic Dynamics and Control; Journal of Empirical Finance; Journal of Finance; Journal of Financial and Quantitative Analysis; Journal of Financial Intermediation; Journal of Financial Markets; Journal of Monetary Economics; Journal of Money, Credit, and Banking; Management Science; Quarterly Journal of Economics and Finance; Review of Asset Pricing Studies; Review of Economic Dynamics; Review of Economics and Statistics; Review of Finance; Review of Financial Studies; Review of Economic Studies

• Conference Program Committee
  Midwest Finance Association (2022, 2023, 2024); Northern Finance Association (2019, 2020, 2021, 2022, 2023, 2024); 2nd Short-Term Funding Markets Conference (2018)

• 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

• Other
  Review of Proposal No. 1231858 for 2023 Regular Fondecyt National Projects Competition

Service to the University

• Lerner Strategic Planning FinTech Team Leader (jointly with Gang Wang) (2024); P&T Committee (2023, 2024); Faculty Senate (2022, 2023); Co-chair Tenure-Track Faculty Recruiting Committee (2023); Tenure-Track Faculty Recruiting Committee (2018, 2019, 2021); FinTech Committee (2020, 2023); Lerner College of Business and Economics Organization Committee (2021, 2022, 2023); Ad-hoc committee on Calculus in Finance (2023); Ad-hoc Financial Databases committee (2023); Continuing-Track Recruiting Committee Chair (2022); Undergraduate Curriculum Committee (2022); M.S. Finance Program Committee (2018);

Additional Information

• Programming Languages and Software: C/C++, Julia, Matlab, Python, SAS, Stata
• Citizenship: United States, Germany
• Languages: English, French, German (native)