Karamfil Todorov

PhD candidate in Finance
Department of Finance
London School of Economics and Political Science

I am a 5th year PhD candidate in Finance at the London School of Economics. My research interests are Empirical Asset Pricing, Financial Derivatives, Fixed Income, and Macro-finance.

I will be available for interviews at the 2019 European Job Market in Rotterdam, December 18-19 and at the AFA/ASSA meetings in San Diego, USA, 3–5 Jan 2020.

Research / Publications
Passive Investors Actively Impact Prices: Evidence from the Largest ETF Markets (Job market paper)
Best Paper, 7th SUERF(European Money and Finance Forum)/UniCredit Foundation Research Prize, 2019

This paper studies the size and source of exchange-traded funds’ (ETFs) price impact in the most ETF-dominated asset classes: volatility (VIX) and commodities. I show that the introduction of ETFs increased futures prices and decreased realized returns. To identify ETF-induced price distortions, I propose a model-independent approach to replicate the value of a VIX futures contract. This allows me to isolate a non-fundamental component in VIX futures prices, of 18.5% per year, that is strongly related to the rebalancing of ETFs. To understand the source of that component, I decompose trading demand from ETFs into three main parts: leverage rebalancing, calendar rebalancing, and flow rebalancing. Leverage rebalancing has the largest effects. It amplifies price changes and introduces unhedgeable risks for ETF counterparties. Surprisingly, providing liquidity to leveraged ETFs turns out to be a bet on variance, even in a market with a zero net share of ETFs. Trading against leverage rebalancing delivers large abnormal returns and Sharpe ratios above two across markets. The returns jump up in times of market distress.

Keywords:
ETF
Passive investing
Commoditization
VIX
Price impact
Leverage
Quantify the Quantitative Easing: Impact on Bonds and Corporate Debt Issuance
Journal of Financial Economics, August 2019

This paper studies the impact of the ECB's Corporate Sector Purchase Programme (CSPP) announcement on prices, liquidity and debt issuance in the European corporate bond market using a dataset on bond transactions from Euroclear. I find that the QE programme increased prices and liquidity of bonds eligible to be purchased substantially. Bond yields dropped on average by 30 bps (8%) after the CSPP announcement. Tri-party repo turnover rose by 8.15 million USD (29%), and bilateral turnover went up by 7.05 million USD (72%). Bid-ask spreads also showed significant liquidity improvement in eligible bonds. QE was successful in boosting corporate debt issuance. Firms issued 2.19 billion EUR (25%) more in QE-eligible debt after the CSPP announcement, compared to other types of debt. Surprisingly, corporates used the attracted funds mostly to increase dividends. These effects were more pronounced for longer-maturity, lower-rated bonds, and for more credit-constrained, lower-rated firms.

Keywords:
Quantitative easing (QE)
Corporate Sector Purchase Programme
European Central Bank
Bond market
Corporate debt issuance
PDF
What Drives Repo Haircuts? Evidence from the UK Market. Working paper, joint with Christian Julliard (LSE), Zijun Liu (BoE), Seyed E. Seyedan (LSE), and Kathy Yuan (LSE)

We examine the determinants of repo haircuts using a regulatory transaction-level dataset of the UK market. We find that transaction maturity and collateral quality have first order importance. We also document that counterparties matter in determining haircuts. Hedge funds, as borrowers, receive significantly higher haircuts. Larger borrowers with higher ratings receive lower haircuts, but we find that these effects can be overshadowed by collateral quality. Repeated bilateral relationships also matter and generate lower haircuts. We find evidence supporting an adverse selection explanation of haircuts, but limited evidence in favor of lenders' liquidity position or default probabilities affecting haircuts. Finally, we show that banks with higher network centrality charge and pay lower haircuts.

Keywords:
Repurchase agreement
Systemic risk
Repo market
Margin
Haircut
Network analysis
PDF
Work in progress
Liquidity Commonality Across Asset Classes. Working paper, joint with Thummim Cho (LSE) and Andrea Tamoni (LSE)

Preliminary draft available on request.

Keywords:
Liquidity
Systemic risk
Intermediary asset pricing
Understanding Turnover in the European Bond Market. Working paper, joint with Ron Anderson (LSE)

In this paper we study one aspect of liquidity, namely trading activity, in the European bond market. We analyze a rich data set of individual bond issues which to our knowledge has not previously been the subject of systematic analysis. Our main analysis focuses on bilateral and tri-party repo turnover, number of trades, and average trade size in approximately 20,000 bonds that are actively traded in the European time zone. We break-down this activity using a variety of characteristics of the issue and of the issuer. The fact that these characteristic should matter is hardly surprising or controversial. However, very little is known in general about the impact of these characteristics on market liquidity. This paucity of "stylized facts" about the bond market makes it difficult to approach more complicated questions such as the effects of central bank interventions, regulations, or shift to electronic trading, on bond liquidity. We set out some basic facts contained in 22 million bond market transactions that shed light on some of these questions.

Keywords:
Bond turnover
Liquidity
Repo market
Eurozone
The Bitcoin market. Working paper, joint with Igor Makarov (LSE)

In this paper we analyze the trading of different players in the Bitcoin market. We identify large exchanges, miners, and other major market participants, and document key patterns of flows between them.

Keywords:
Cryptocurrencies
Bitcoin
Trading
Teaching
Undergraduate students
Master students
LSE Finance Summer School
Contacts
Karamfil Todorov
PhD candidate in Finance
Department of Finance
London School of Economics and Political Science