Guillaume Roussellet
Assistant Professor of Finance
McGill University (on leave)
Research Economist - Federal Reserve Bank of New York
Contact Details:
33 Liberty St, 4th floor,
New York, NY 10045, USA
McGill webpage, FRBNY webpage,
\(\rightarrow\) guillaume.roussellet[at]ny.frb.org
\(\rightarrow\) download my CV
🧠Research interests: Financial Econometrics, Monetary Policy and Macrofinance, Term Structure of Interest Rates, Credit Risk.
Working Papers
What do Bond Investors Learn from Macroeconomic News?, 2024 (new version)
submitted, with Bruno Feunou and Jean-Sebastien Fontaine
Abstract
Macroeconomic data releases drive US bond yields primarily through the term premium instead of the expectation channel. The evidence exploits a monthly specification for yields embedding the impacts of news identified from high-frequency data. To match the facts, we develop and calibrate a no-arbitrage model where investors learn about future monetary policy using data releases with imperfect information. If macro news carry perfect information, the model predicts that the bonds’ Sharpe ratio decreases and the term premium declines by half for every maturity, suggesting that central bank’s communication can lower the term premium and financing costs across the economy.
Identifying Beliefs From Asset Prices, 2023
with Anisha Ghosh
Abstract
We propose a novel methodology to identify investors’ subjective beliefs from asset prices and survey forecasts. Our approach recovers price-consistent beliefs – the conditional distribution of macroeconomic and financial variables satisfying the Euler equations for a cross-section of assets, given an SDF and conditioning set – while producing unbiased survey forecast errors. Our procedure is agnostic about the DGP or investor rationality. Subjective beliefs about consumption growth are indicative of investor exuberance, stemming from overestimation of mean and underestimation of left tail risk. Beliefs about the stock market and its volatility are countercyclical and correlate with institutional investors’ expectations and VIX, respectively.
Managing Hedge Fund Liquidity Risks, 2023
with Serge Darolles
Abstract
We study hedge fund liquidity management in the presence of liquidity risks on the asset and liability sides. We formulate a two-period model where a single fund has always access to a liquid asset and can invest in an illiquid asset which pays off only at the end of period two. Funding liquidity risk takes the form of a random outflow originating from clients in period one. The fund suffers from a random haircut on the illiquid asset’s secondary market to cover its outflow. We solve the allocation problem of the fund and find its optimal allocation between liquid and illiquid assets. We show that the liquidation probability and the portfolio composition of the fund are revealing about the market liquidity and funding liquidity, respectively. Gates, as a device that limits the outflows experienced by the fund, helps it reduce its liquidation risk and harvest liquidity premia
Preventing COVID-19 Fatalities: State versus Federal Policies, 2020
with Jean-Paul Renne and Gustavo Schwenkler
Abstract
Are COVID-19 fatalities large when a federal government does not enforce containment policies and instead allow states to implement their own policies? We answer this question by developing a stochastic extension of a SIRD epidemiological model for a country composed of multiple states. Our model allows for interstate mobility. We consider three policies: mask mandates, stay-at-home orders, and interstate travel bans. We fit our model to daily U.S. state-level COVID-19 death counts and exploit our estimates to produce various policy counterfactuals. While the restrictions imposed by some states inhibited a significant number of virus deaths, we find that more than two-thirds of U.S. COVID-19 deaths could have been prevented by late November 2020 had the federal government enforced federal mandates as early as some of the earliest states did. Our results quantify the benefits of early actions by a federal government for the containment of a pandemic.
When Long-Run Trends Are Unknown: Bond Pricing Implications (in progress)
with Borel Ahonon
Published Papers
Default Risk and the Pricing of U.S. Sovereign Bonds, 2024
Journal of Finance, forthcoming, with Robert Dittmar, Alex Hsu and Peter Simasek
Abstract
We examine the relative pricing of nominal Treasury bonds and Treasury inflation protected securities (TIPS) in the presence of United States default risk. Hedged breakeven inflation (ILSBEI) is positively and significantly related to U.S. default risk, driven by correlation between shocks to default risk and both shocks to inflation swap premia and TIPS yields. To understand the mechanisms through which default risk is related to inflation swaps and sovereign yields, we estimate an affine term structure model to capture their joint dynamics. Our estimation implies that the interaction between inflation dynamics and default is the primary source of differential pricing.
The Term Structure of Macroeconomic Risks at the Zero Lower Bound
Journal of Econometrics, forthcomingBibtex
@article{ROUSSELLET2023105383,
title = {The term structure of macroeconomic risks at the effective lower bound},
journal = {Journal of Econometrics},
pages = {105383},
year = {2023},
author = {Guillaume Roussellet}
}
Affine Modelling of Credit Risk, Pricing of Credit Events and Contagion
Management Science, Vol. 67, No. 6, June 2021
with Alain Monfort, Fulvio Pegoraro and Jean-Paul RenneBibtex
@Article{ROUSSELLET_MS_CREDIT_2020,
author={Monfort, Alain and Pegoraro, Fulvio and Renne, Jean-Paul and Roussellet, Guillaume},
title={Affine Modeling of Credit Risk, Pricing of Credit Events and Contagion},
year={2020},
journal = {Management Science},
Volume = {67},
Number = {6},
pages = {3321-3984}
}
Scenario Generation for Long-Run Interest Rate Risk Assessment
Journal of Econometrics, Vol. 201, No. 2, December 2017
with Robert Engle and Emil SiriwardaneBibtex
@article{ENGLE2017333,
title = {Scenario generation for long run interest rate risk assessment},
journal = {Journal of Econometrics},
volume = {201},
number = {2},
pages = {333-347},
year = {2017},
author = {Engle, Robert and Roussellet, Guillaume and Siriwardane, Emil},
}Staying at Zero with Affine Processes
Journal of Econometrics, Vol. 201, No. 2, December 2017
with Alain Monfort, Fulvio Pegoraro and Jean-Paul RenneBibtex
@article{MONFORT2017348,
title = {Staying at zero with affine processes: An application to term structure modelling},
journal = {Journal of Econometrics},
volume = {201},
number = {2},
pages = {348-366},
year = {2017},
author = {Monfort, Alain and Pegoraro, Fulvio and Renne, Jean-Paul and Roussellet, Guillaume }
}A Quadratic Kalman Filter
Journal of Econometrics, Vol. 187, No. 1, July 2015
joint with Alain Monfort and Jean-Paul RenneBibtex
@article{MONFORT201543,
title = {A Quadratic Kalman Filter},
journal = {Journal of Econometrics},
volume = {187},
number = {1},
pages = {43-56},
year = {2015},
author = {Monfort, Alain and Renne, Jean-Paul and Roussellet, Guillaume}
}Credit and Liquidity in Interbank Rates: A Quadratic Approach
Journal of Banking and Finance, Vol. 68, July 2016
with Simon Dubecq, Alain Monfort and Jean-Paul RenneBibtex
@article{DUBECQ201629,
title = {Credit and liquidity in interbank rates: A quadratic approach},
journal = {Journal of Banking & Finance},
volume = {68},
pages = {29-46},
year = {2016},
author = {Dubecq, Simon and Monfort, Alain and Renne, Jean-Paul and Roussellet, Guillaume}
}Fiscal Sustainability in the Presence of Systemic Banks: The Case of EU Countries
International Tax and Public Finance, Vol. 21, pp. 436-467, 2014
with Agnès Bénassy-QuéréBibtex
@article{AGNESBQ2014,
title = {Fiscal Sustainability in the Presence of Systemic Banks: The Case of EU Countries},
journal = {Internationl Tax and Public Finance},
volume = {21},
pages = {436-467},
year = {2014},
author = {Benassy-Quere, Agnes and Roussellet, Guillaume}
}