This entry pertains to the European Summer Symposium in Financial Markets (ESSFM) 2025 — Asset Pricing. The conference was held at the Study Center Gerzensee, a scenic Swiss village near Bern.
Gerzensee is small, quiet, and very green, which turned out to be ideal for keeping everyone focused.
The schedule followed a consistent rhythm: morning sessions of three papers (about 3.5 hours total), an evening session of three papers (about 1.5 hours), and structured lunch/dinner slots. Afternoons were mostly unscheduled, meaning people either worked, hiked, or played soccer.
I was sad that my coauthor Federico could not make it, but this gave me some time for one-on-one conversations. The smaller size of the profession at Gerzensee means you get to know each other quickly, both the research and the quirks.
Here is a summary of the sessions I attended (which is pretty much every session except for Friday where I fell sick):
Mete Kilic presented “The Fed and the Wall Street Put” which studies how different investors trade S&P500 index options around FOMC meetings. They find that proprietary trading firms act as net sellers of options on announcement days, in contrast to their behavior on other days.
Discussant Sebastian Hillenbrand suggested a few alternate empirical tests and whether equities alone is the right asset class to look at. Personally, the most interesting part of the paper is distinguishing between (i) predicting the policy announcement itself or (ii) predicting the market reactions to the policy announcement.
Christian Skov Jensen presented “The Cyclicality of Risk and Risk Premia” which studies the ratio of conditional risk premium to variance. They show that this ratio (1) pins down the conditional beta in a regression of the SDF onto the market return, and (2) this ratio is weakly procyclical, unlike the Sharpe ratio. My takeaway from the paper is that different asset markets are more amenable to different representations of the risk-return relationships, and the one offered by the authors is more appropriated for certain markets like options and equity term structure.
Indira Puri presented “Certain vs. Uncertain Timing: Financial Markets and Pricing Implications” which I already had seen at the NBER SI. But it helped to see it once more. My biggest question is whether it’s possible to give an option to wait to the participants in the experiment that the author ran. This is also what the discussant Quentin Vandeweyer brought up in his discussion.
Vadim Elenev presented “Interest Rate Risk and Cross-Sectional Effects of Micro-Prudential Regulation” which presents a two-period model that rationalizes the cross-section of bank portfolio and funding choices. A key stylized fact that serve as motivation is that less loan-productive banks are mainly in deposit business and use bonds to back insured deposits, while the more loan-productive banks grow using uninsured deposits and hold bonds against run risk. They also show that size-dependent capital requirements reduce run risk with fewer side effects than equal capital requirements or liquidity regulation.
Alexi Savov led the focus session on “Credit Markets and the Economy” and presented “Monetary Policy and the Mortgage Market” that talks about how one area where MP had a clear and strong impact is the mortgage market. The paper convincingly paints a picture of how central mortgage markets are to the transmission of monetary policy.
The key idea is that monetary policy shifts the supply of mortgage credit by the two largest mortgage holders: banks and the Fed. For the Fed, this is due to QE and QT. For banks, authors show that it is due to the deposits channel of MP. Note that this is “supply” because buying an MBS is functionally equivalent to providing funding for the underlying mortgage loans, so investors in MBS (including the Fed) are suppliers of credit to the mortgage market.