Manav Chaudhary

Corporate Bond Multipliers: Substitutes Matter
Conditionally Accepted at  Review of Financial Studies
(with Zhiyu Fu and Jian Li)

Many economic questions require estimating the price effect of demand shifts (multipliers) in the bond market. Corporate bonds have salient characteristics that distinguish close versus distant substitutes. We show that accounting for the heterogeneous substitutability between bonds is critical for estimating multipliers correctly. By allowing for heterogeneous substitution, we find that security-level multipliers are essentially zero—an order of magnitude smaller than the estimate ignoring heterogeneous substitutability. Nonetheless, portfolio multipliers are substantially larger and monotonically increase with the aggregation level. Furthermore, we find that the multiplier is larger for high-yield bonds, longer-maturity bonds, and bonds with greater arbitrage risks.

• Presentations: AFFECT 2023 mentorship workshop, AFA 2024, the Bank of Canada-Queen’s workshop on financial intermediation and regulation, Columbia Business School, David Backus Memorial Conference on Macro-Finance, Economic Dynamics and Financial Markets Working Group at the University of Chicago, EFA, EPFL, FIFI conference, HBS Junior Finance Conference, HKUST, NBER Summer Institute, Purdue University, University of Minnesota, TADC at LBS, and the Yiran Fan Memorial Conference at the University of Chicago.

• Awards: TADC’s AQR Asset Management Institute Prize for best economics paper

Regulator Model-Implied Beliefs
Revise and Resubmit at  Journal of Finance

Financial regulations rely on regulator-controlled models to generate probabilistic forecasts which determine firm constraints. I refer to these forecasts as regulator model-implied beliefs. Using the U.S. life insurance sector as a laboratory, I measure both regulator model-implied and insurer expectations. I show that the regulator model disagrees with insurers and quantitatively mirrors the systematic belief patterns observed in human forecasters, embedding these patterns into regulatory constraints. Insurers, in turn, pass through these belief dynamics into their portfolio decisions, effectively coordinating behavior at the sector level. This mechanism reveals a new channel linking well-documented belief dynamics to financial intermediary decisions.

• Presentations: Boston College, Colorado Finance Summit, Cornell, HBS Finance, HBS BGIE, Imperial College, LBS, LSE, OSU, University of Chicago, UC Boulder, USC, and University of Toronto

• Awards: Colorado Finance Summit Best Job Market Paper Award

Anatomy of the Treasury Market: Who Moves Yields?
(with Zhiyu Fu and Haonan Zhou)

Factor regressions provide a model-agnostic way to identify what drives Treasury yields, but not which investors respond. We develop an equilibrium framework that decomposes yield-factor regressions into investor-level drivers. An optimal estimator that weights idiosyncratic shocks across investors identifies each investor’s demand response to yields and economic factors. Aggregating through market clearing recovers the standard factor regression, now decomposed by investor. Treasury demand is highly inelastic, with substantial heterogeneity across investors and time. Since 2008, foreign investors’ influence has waned while the Federal Reserve’s has grown. During flight-to-safety episodes, domestic—not foreign—investors drive the sharp decline in yields.

• Presentations:  Bank of England, Bank of Korea, Brown University, Chicago Booth Treasury Markets Conference, CUHK Shenzhen, EFA, Federal Reserve Board of Govenors, HBS Junior Finance Conference, HKU, HKUST, NBER Summer Institute Asset Pricing, OFR Rising Scholar Conference, Peking University, Second UIC Finance Conference, Sovereign Bond Markets International Conference, University of Virginia, University of Zurich, WashU Olin.

• Awards: Arthur Warga Award for Best Paper in Fixed Income, SFS Cavalcade AP 2025

• Optimal GIV: Python package and Juila package

Which Intermediary Costs Matter for Asset Prices? 
(with Zhiyu Fu and Jian Li)

When intermediaries such as dealers lack the balance-sheet capacity to absorb investor demand, asset prices deviate from fundamentals. Arbitrage spreads (e.g., Treasury-OIS spreads) are widely used to diagnose such distortions. Yet, it is the overall level of prices (e.g., Treasury yields) that ultimately governs borrowing costs and monetary policy transmission, not spreads. It remains unclear whether spreads accurately capture distortions in these levels. We develop a model where intermediaries face two costs: one proportional to portfolio risk, another tied to gross position size. Gross position costs predominantly drive spread distortions; risk costs primarily drive price-level distortions. The theory delivers a sufficient statistic: differences in the rate at which price levels and spreads revert after a demand shock separately identify these costs. We apply this framework to U.S. Treasury and OIS markets using high-frequency demand shocks identified from Treasury auctions. Risk costs dominate on average: demand shocks move yields substantially while leaving spreads largely unchanged. A calibrated model reinforces the disconnect: relaxing position costs such as the supplementary leverage ratio sharply reduces spread volatility with little effect on yield volatility, while easing risk-based costs does the reverse. Overall, spreads alone miss the dominant source of price-level distortions.

• Presentations:  Bank of England, Columbia Business School, LSE, WashU Olin.

Inflation Expectations and Stock Returns
(with Ben Marrow)

How do inflation expectations affect stock returns, and what accounts for this relationship? We directly measure investors' expectations using traded inflation-indexed contracts and show that, post-2000, stocks offer positive returns in response to higher expected inflation: unconditionally, a 10 basis point increase in 10-year breakeven inflation is associated with a 1.1% increase in the value-weighted stock index. Using a wide range of approaches, we show that this positive relationship is almost entirely due to aggregate variations in expected excess returns rather than changes in firm cash flows (e.g., due to higher mark-ups) or fluctuations in risk-free rates (e.g., due to expected monetary policy response). Overall, a risk premium “proxy” mechanism appears to explain this dominant role of expected excess returns: higher long-term inflation expectations signal stronger future economic growth and reduced volatility.

• Presentations: LBS's TADC, University of Chicago, Yiran Fan Memorial Conference (poster), CCSRG, Inter-finance PhD Seminar

• Awards: TADC’s AQR Asset Management Institute prize for best finance paper, Yiran Fan Memorial prize for best third year paper