Working Papers

Crypto Risk Premia
with Daniele Massacci, Mirco Rubin and Dario Ruzzi, July 2022 [pdf]

Abstract: This paper studies risk premia in a large cross-section of cryptocurrency. We characterize the stochastic discount factor in terms of latent factors and obtain risk premia estimates for a large set of observable factors that are robust to omitted variable and measurement error. These are particularly relevant issues in the study of this novel asset class. We show that several price-based crypto and non-crypto factors are priced in the cross-section of crypto returns. Most importantly, we find that macroeconomic risk is priced in cryptocurrency: coins with lower payoffs at times of higher geopolitical risk or negative macro shocks are riskier and offer higher returns. These findings uncover clear linkages to other asset classes and to macroeconomic conditions, thus providing a broad perspective on crypto risk premia.

Media coverage:, August 5 2022 |

The Economics of Non-fungible Tokens, R&R at the Journal of Finance
With Yukun Liu and Aleh Tsyvinski, March 2022 [pdf]

Abstract: We construct a comprehensive dataset on a near universe of non-fungible token (NFT) transactions, create indices for the NFT market and its components, and analyze their properties. The NFT market return is significantly exposed to the cryptocurrency market return, but the majority of the NFT market variations remain unexplained. NFT market returns have low exposures to other cryptocurrency factors and factors from traditional asset markets. In the time-series, volatility and the NFT valuation ratio significantly predict NFT market returns. In the cross-section, NFT returns exhibit size and return reversal effects.

Media coverage: Financial Times, May 13 2022 | Financial Times, May 22 2022 | Pour l'Eco, June-July 2022 | Chainlink Research Report, June 2022 | Investor's Chronicle, September 8 2022

Redistributive Taxation with Skill Biased Technologies

With Pietro Reichlin, February 2022 [pdf]

Abstract: We study the long run optimal redistributive tax structure on capital and labor in a dynamic model with heterogeneous labor productivities and skill biased technology. Assuming that the planner's actions are restricted by a log-linear (progressive) tax and transfer function of pre-tax labor income and that low skilled households are hand-to-mouth consumers, the optimal long-run capital tax rate is positive and the labor marginal tax rate can be positive or negative, depending on demand elasticities as well as on the impact of capital on the skill premium. A positive capital tax serves the purpose of reducing tax distortions arising from redistribution, and it survives for any parametrization of the log-linear tax scheme except for a fully progressive system. Under a plausible quantitative evaluation, we show that the benefits of the capital tax are relatively small and associated to a regressive labor tax schedule.

Crypto Premium: Higher-Order Moments and Tail Risk

Abstract: To what extent bitcoin returns reflect the compensation for skewness and kurtosis in the stochastic discount factor, namely the \textit{crypto premium}? To answer this question we consider a flexible dynamic specification for high-order moments and tail risk via a stochastic component responsible for sudden and large price moves, that we call \textit{jumps}. A relevant portion of the bitcoin variability can be attributed to jumps, and both skewness and kurtosis are drivers of the crypto premium. Higher investor attention and lower liquidity are associated with a higher premium, while co-skewness and co-kurtosis help explaining the returns of a large panel of cryptocurrencies.

Cryptomarket Discounts

With Kirill Shakhnov, February 2018 [pdf][BibTeX]

Abstract: This paper studies the efficiency of cryptocurrency markets. We consider 109 exchanges around the globe where investors can trade bitcoin for different fiat and cryptocurrency pairs and discuss the shape and structure of the distribution of daily bitcoin prices across different markets, currencies and time periods. We find that the typical price distribution is symmetric and leptokurtic with a standard deviation that varies over time between 2% to 9%. We find that a large fraction of the time variation in the dispersion of bitcoin prices depends on fluctuations in counter-party risk, liquidity, and global demand for bitcoins. On a given day, we find that 67% of the dispersion is due to price differences across exchanges located in different geographical locations. Panel estimates indicate that the variability of bitcoin discounts is lower the lower counter-party risk and bid-ask spreads. Temporary and permanent exchange shut downs are also associated in a reduction in bitcoin discounts in other markets.

Limited participation and local currency sovereign debt

With Kirill Shakhnov, June 2017 [pdf+online appendix][BibTeX]

Abstract: Emerging country governments increasingly issue bonds denominated in local currency. Despite this recent development, the markets for foreign and local currency government bonds exhibit a substantial degree of segmentation. First, we show that a standard asset pricing model with representative foreign investor cannot price both local and foreign currency government bonds. Second, we show that the share of local currency debt held by foreign investor is a significant determinant of the degree of market segmentation. Third, we propose a simple model of partially segmented markets that replicates the observed empirical regularities.

Sovereign Risk Premia (Revise and Resubmit RFS)

With Adrien Verdelhan, February 2012 [pdf,appendix,data]

2010 WRDS Best Paper Award (EFMA Conference)

ABI Country Risk Forum Best Paper Award 2010 (IRMC Conference)

Abstract: Emerging countries tend to default when their economic conditions worsen. If bad times in an emerging country correspond to bad times for the US investor, then foreign sovereign bonds are particularly risky. We explore how this mechanism plays out in the data and in a general equilibrium model of optimal borrowing and default. Empirically, the higher the correlation between past foreign and US bond returns, the higher the average sovereign excess returns. In the model, sovereign defaults and bond prices depend not only on the borrowers' economic conditions, but also on the lenders' time-varying risk-aversion.

Published Papers

The Cross-Section of Cryptocurrency Returns

With Kirill Shakhnov, [pdf+online appendix], Review of Asset Pricing Studies (forthcoming)

Breakup and Default Risks in the Great Lockdown

With Giovanni Bonaccolto and Andrea Consiglio, Journal of Banking & Finance (2021) [pdf+online appendix] [published version]

The Great Lockdown: Inactive Workers and Mortality by Covid-19

With Francesco Drago, Chiara Santantonio, and Francesco Sobbrio, Health Economics (2021) [published version] [pdf]

[also available as CEPR DP15317][VoxEu column on our paper]

Global Risk in Long-Term Sovereign Debt

With Kirill Shakhnov, Review of Asset Pricing Studies (2021) [pdf+online appendix] [published version] [slides] [video]

Systemic Risk and the COVID Challenge in the European Banking Sector

with Giorgio di Giorgio, Journal of Banking & Finance, (2021) [pdf] [published version]

Optimal Taxation with Homeownership and Wealth Inequality

With Pietro Reichlin, Review of Economic Dynamics, Vol. 40, April 2021, pp. 64-84 [pdf] [published version]

[CEPR DP14144 version]

Regulation Spillovers across Cryptocurrency Markets

With Kirill Shakhnov, Finance Research Letters, October 2020 [pdf][Media Coverage: Mondato]

Financial Intermediaries' Asset-Liability Dependency and Low-Interest Rate Environment: Evidence from EU Life Insurers

With Rosaria Cerrone, Rosa Cocozza and Domenico Curcio, Journal of Financial Management, Markets and Institutions, Vol. 7, No. 1, 2019

Conditional Tail-Risk in Cryptocurrency Markets

Journal of Empirical Finance (Lead Article), Vol. 50, January 2019 [published version][pdf][BibTeX]

Redenomination-Risk Spillovers in the Eurozone

Economic Letters, Vol. 174, January 2019 [pdf] [policy version for in Italian]

Life Insurers' Asset-Liability Dependency and Low Interest-Rate Environment

With Rosaria Cerrone, Rosa Cocozza and Domenico Curcio, in M. Corazza, M. Durban, A. Grane', C. Perna and M. Sibillo, eds. Mathematical and Statistical Methods for Actuarial Sciences and Finance, Springer, 2018

The Housing Cost Disease

With Pietro Reichlin, Journal of Economic Dynamics and Controls, Vol. 87, February 2018 [pdf][BibTeX]

[CEPR WP DP10756 version][Voxeu column based on this paper (September 8, 2015)]

Local Currency Systemic Risk

Emerging Markets Review, Vol. 34, 2018 [pdf][BibTeX]

The Performance of Market-Timing Strategies of Italian Mutual Funds Investors

With Alberto Cagnazzo, Economics Notes, Vol. 47: No.1, pp 5-20, 2018 [pdf]

[featured on 6/22/2015, "Why Chasing Stock Returns Could Cost You $1.9 Million"]

Sensitivity, Moment Conditions, and the Risk-Free Rate in Yogo (2006)

with Giuseppe Ragusa, Critical Finance Review, Vol. 6: No. 2, pp 381-393, 2017 [pdf][replication files]

Systemic Risk in the Italian Banking Industry

With Marianna Caccavaio, Giorgio di Giorgio and Alberto Sorrentino, Economic Notes, Vol. 43, 1, pp. 21-38, 2014 [link]

Systemic Risk in the European Banking Sector

With Marianna Caccavaio, Giorgio di Giorgio and Alberto Sorrentino, Rapporto Fondazione Rosselli 2012 [link]

I debiti sovrani nell'area euro: implicazioni per la gestione e la distribuzione dei prodotti di risparmio

With Filippo Russo, Rivista Bancaria, 5-6, 2011 [pdf]

Other Papers

Wealth Taxes and Inequality

With Pietro Reichlin, July 2018 [pdf] [slides] [also available as CEPR DP13067]

Abstract: We analyze the optimal combination of wealth and labor tax rates in a model where wealth-to-income ratios and wealth inequality are rising endogenously due to unbalanced technological improvement in a two-sector economy. We consider rich and poor households, financial and housing wealth, and find that a ''realistic'' optimal steady state tax structure includes some taxation of labor, zero taxation of financial wealth, a housing wealth tax on rich households and a housing wealth subsidy on poor households. These findings are robust with respect to variations in the housing demand elasticity.

Closed-End Fund Discounts and Aggregate Risk

With Adrien Verdelhan, July 2009 [coming soon]

Abstract: Closed-end fund market prices differ substantially from their net asset values (NAV), offering time-varying, positive or negative, discounts. We build portfolios of monthly closed-end fund returns by sorting these funds on their NAV discounts. We obtain a monotonically decreasing cross-section of average excess returns. The annualized Sharpe ratio on a simple strategy that goes long in the lowest and short in the highest NAV discount basket is 0.8. We show that return-based risk factors explain a large share of this cross-section of excess returns. As a result, closed-end fund discounts reflect aggregate risks that are not embodied in their NAVs.

Japanese Medium Term Cycle

With Diego Comin, 2009

Abstract: Two aspects of Japanese stagnation in the 1990s are its severity and persistence. We build a two-country real business cycle model with endogenous productivity, as in Comin and Gertler (2006), to study the importance of foreign factors such as technology, competition and trade policy in shaping the Japanese medium-term cycle. The model predicts that high frequency domestic or international real shocks are propagated into the medium term by the endogenous development of new technologies.

Discussions Slides

Barriers to Global Capital Allocation
By Bruno Pellegrino, Enrico Spolaore and Romain Wacziarg
Luiss workshop, June 2022

Bank Risk-Taking and the Real Economy: Evidence from the Housing Boom and its Aftermath

By Antonio Falato, Giovanni Favara, and David Scharfstein

Conference in Honor of Francesco Giavazzi, Bocconi, September 2019