Using confidential daily foreign exchange interventions (FXI) data, we analyse the FXI episode of the Bank of Israel (BOI) from 2013 to 2019. We find that a purchase of US dollar (USD) 1 billion is on average associated with a depreciation of the Israeli new shekel (ILS) by 0.82%-0.83%, which is at the upper bound of the estimated impact in other studies. We show that this effectiveness can be explained by global financial intermediaries’ limited risk-taking capacity. The (indirect) effect on the forward rate is smaller-the BOI’s USD purchases have widened the negative deviation from covered interest parity. This widening remains significant over 90 days. Contrary to the findings in earlier empirical literature, the higher moments of the risk-neutral probability distribution of future spot exchange rates are also affected. The USD purchases shift the whole distribution towards higher USD/ILS values while reducing crash risk. We also find that the USD/ILS options market partially anticipates intervention episodes and prices them in before they occur.
@article{hertrich2026fx,title={FX Interventions and Capital-Constrained Banks: Evidence from USD/ILS Spot, Forward, and Option Markets},author={Hertrich, Markus and Nathan, Daniel},journal={Journal of Money, Credit and Banking},year={2026},dimensions={true},url={http://doi.org/10.1111/jmcb.70037},}
2025
MS
Exchanges for Government Bonds? Evidence during COVID-19
Media: Odd Lots Bloomberg Podcast: Darrel Duffie on Illiquidity and Volatility in the US Treasury Market, 2023
We leverage the unique institutional feature that the Israeli government bond market operates on an exchange rather than over-the-counter to analyze whether and why having an exchange affects market liquidity during a crisis. We document how the liquidity crisis in March 2020 affected the Israeli government bond market, and conduct difference-in-differences analyses, comparing bid-ask spreads in exchange markets (such as the Israeli government bond and U.S. future market) with markets lacking an exchange (like the U.S. government bond market). Our findings support the idea that having an exchange enhances market liquidity. A counterfactual analysis using trade data from the Israeli exchange suggests that this is due to the ability of investors to readily provide liquidity to one another and the efficient netting of trade flows on an exchange.
@article{kutai2022exchanges,title={Exchanges for Government Bonds? Evidence during COVID-19},author={Kutai, Ari and Nathan, Daniel and Wittwer, Milena},journal={Management Science},dimensions={true},year={2025},media={Odd Lots Bloomberg Podcast: Darrel Duffie on Illiquidity and Volatility in the US Treasury Market, 2023}}
2024
RAPS
Shorting the Dollar When Global Stock Markets Roar: The Equity Hedging Channel of Exchange Rate Determination
Media: Institutional Investors’ Hedging of Foreign Exchange Risk from Investing in Equities Abroad can Affect the Exchange Rate, VoxEU, 2023
This paper investigates the influence of global equity market shocks on institutional investors’ (IIs’) hedging behavior and the resulting effects on exchange rates. Employing unique daily data on Israeli IIs’ foreign exchange (FX) forward flows, we find that a one standard deviation global equity market shock generates significant and persistent selling of US dollar forwards by IIs, as a hedge against heightened FX exposure, along with significant and persistent exchange rate appreciation. To reinforce the causal interpretation of our findings, we use both a granular instrumental variable estimation approach as well as a Bartik instrument one to show that IIs’ hedging demand shocks induce significant exchange rate appreciation.
@article{ben2024shorting,title={Shorting the Dollar When Global Stock Markets Roar: The Equity Hedging Channel of Exchange Rate Determination},author={Ben Zeev, Nadav and Nathan, Daniel},journal={Review of Asset Pricing Studies},year={2024},dimensions={true},media={Institutional Investors' Hedging of Foreign Exchange Risk from Investing in Equities Abroad can Affect the Exchange Rate, VoxEU, 2023}}
JIE
The Widening of Cross-Currency Basis: When Increased FX Swap Demand Meets a Shortage of Global Arbitrage Capital
This paper examines customer demand-side factors that affect deviation from covered interest rate parity (CIP) with respect to the dollar (i.e., cross-currency basis), particularly when arbitrageurs are constrained. Using novel detailed daily transaction-level data on the universe of Israeli institutional investors (IIs), we employ a granular instrumental variable (GIV) estimation to investigate how IIs’ FX swap demand affects CIP deviation. Our findings demonstrate that a one standard deviation shock to IIs’ FX swap demand when capital is abundant has a null effect on IIs’ basis. However, when capital is scarce, the demand shock produces significant and persistent reduction of 3.9-8.4 basis points in IIs’ basis, remaining significant for over 500 trading days. Our results, which are unchanged when we consider the complementary and popularized Bartik instrument approach instead of the GIV one, showcase how limits of arbitrage, together with demand shocks from a large customer base, can drive CIP deviations.
@article{nathan2022persistent,title={The Widening of Cross-Currency Basis: When Increased FX Swap Demand Meets a Shortage of Global Arbitrage Capital},author={Nathan, Daniel and Ben Zeev, Nadav},journal={Journal of International Economics},dimensions={true},year={2024}}
Lead article. Harel Grant for the study of financial markets.
We investigate daily flows to Israeli government bonds mutual funds, which are held primarily by retail investors. We divide the bonds into six categories: nominal/CPI-linked; short-term, intermediate-term, and long-term maturity. We find that daily net flows are contemporaneously correlated with price changes of all categories. These price changes are economically significant and they subsequently reverse fully or mostly within 10 trading days. The price reversal indicates that the initial price changes are due to "noise." We also find that these price distortions affect break-even inflation—a popular measure of inflation expectations. Our findings indicate that even securities that are held by institutions and professional investors are affected by retail sentiment.
@article{abudy2021mutual,title={Mutual Fund Flows and Government Bond Returns},author={Abudy, Menachem Meni and Nathan, Daniel and Wohl, Avi},journal={Journal of Banking and Finance},year={2024},note={Lead article. Harel Grant for the study of financial markets.},url={http://www.sciencedirect.com/science/article/pii/S0378426624000396},dimensions={true},}
Working Papers
2026
SSRN
Anticipated Orders and the Measurement of Stock Demand Elasticity: Evidence from Scheduled Index Rebalances
The elasticity of stock demand is usually computed as a price response divided by an institutional trade. That division implicitly assumes that the institutional trade is what the price responded to. We follow a $92 billion ETF whose required trades are fixed five trading days ahead by a mechanical and public index rule, and we observe both sides of the auction that prices them. The fund’s trade is known in advance. By the closing auction, roughly ten times as much buying and selling interest has gathered around it, 9.29 basis points per basis point of scheduled demand, against 0.44 in stocks that trade in the same auctions but carry no rebalance. Those two sides nearly cancel, and the target explains only 2.1 percent of the variation in the imbalance they leave. The closing price moves with that imbalance, not mechanically with the fund’s original target. Dividing the price response by different candidate measures of demand on the same observations gives values from -3.27 to 2.38.
@article{n2026elasticity,title={Anticipated Orders and the Measurement of Stock Demand Elasticity: Evidence from Scheduled Index Rebalances},author={Nathan, Daniel},dimensions={true},year={2026}}
SSRN
Anomalies on a Schedule: Month-End Liquidity Demand and the Factor Zoo
The first principal component of daily factor returns earns 83% of its mean in a six-day window ending four days before month-end, when institutions raising cash sell their most dispensable stocks, those far below 52-week highs. Across 153 factors over 1963-2025, 47% of the average premium accrues in that window, and exposure to dispensable stocks explains 72% of cross-sectional variation in factor returns inside it against 1.0% outside. Part of what the literature counts as distinct premia is one payment for supplying month-end liquidity. When settlement shortened to T+1 in 2024, the window moved one day closer to month-end. Much of the factor zoo earns its premium on a schedule set by the demand for cash.
@article{ns2026factorzoo,title={Anomalies on a Schedule: Month-End Liquidity Demand and the Factor Zoo},author={Nathan, Daniel and Suominen, Matti},dimensions={true},year={2026},}
U.S. equity momentum returns concentrate in a six-trading-day window ending four trading days before month-end. This pre-turn-of-the-month (PreTOM) window earns 63 percent of the momentum premium over 1980-2025 and all of it since 2002 (our sample mid-point). The concentration is driven by loser stocks, which face disproportionate selling pressure during the PreTOM window, as investors sell stocks to meet month-end cash obligations. Trade-level data show that seller-initiated imbalance rises among losers during PreTOM, while mutual funds facing outflows disproportionately liquidate loser positions. Settlement reforms provide corroborating evidence: the U.S. shift from T+2 to T+1 and the European shift from T+3 to T+2 each move loser stock price pressure one trading day closer to month-end. The PreTOM pattern appears in 19 developed markets. These findings identify month-end liquidity management as a substantial source of momentum returns, distinct from leading behavioral and risk-based explanations.
@article{nst2026,title={The Intramonth Momentum Cycle},author={Nathan, Daniel and Suominen, Matti and Tasa, Joni},dimensions={true},year={2026},}
SSRN
When a Market Changes Hands: Dollar Funding and the Price of a Domestic Safe Asset
Government bills’ convenience yields are commonly attributed to safety and liquidity. We show that foreign investors’ funding costs also matter. When covered-interest-parity deviations allow foreigners to fund local-currency bills below domestic money-market rates, greater foreign ownership makes bill yields more sensitive to foreign funding rates. In Israel, central-bank bills yielded below zero despite a positive policy rate. As foreign ownership rose from 9% to 46%, the convenience yield rose from zero to 51 basis points. Our model attributes 34 basis points to foreign funding. A tax change and hedge maturities provide causal evidence. Mexico and Japan show the same relation.
@article{bzn2025,title={When a Market Changes Hands: Dollar Funding and the Price of a Domestic Safe Asset},author={Ben Zeev, Nadav and Ben-Z'eev, Noam and Nathan, Daniel},dimensions={true},year={2026},}
We evaluate the enforcement of China Walls—information barriers within conglomerates. We focus on July 2018, when the SEC tightened enforcement around broker-dealer subsidiaries, and on the 25 million Israeli Shekel trades over 2018–2024. Our difference-in-differences design compares a dealer’s affiliate, connected, and unrelated funds on days when the dealer likely obtained valuable information. Before July 2018, dealers share information with their affiliate and connected funds. After July 2018: the sharing ceases only with the affiliate funds; price discovery slows; trading costs fall for affiliate funds and rise for other funds. Tightly enforced walls eliminated 99.0% of affiliate funds’ event-day profits.
@article{lnw2025,title={China Walls},author={Lee, Tomy and Nathan, Daniel and Wang, Chaojun},dimensions={true},year={2026},note={<strong>Forthcoming in the Journal of Financial Economics</strong>}}
Permanent Working Papers
2018
SSRN
Decomposing the Term Structure of Interest Rates: Evidence from a Small Open Economy
This paper uses Israeli data of inflation-indexed and nominal government bonds to estimate a discrete-time essentially affine term structure model. To estimate the model, I use a uniquely long-spanned sample of monthly real yields for the period of 01/1985-03/2018. The nominal yields data spans the period of 05/2001-03/2018. I document an unconditional upward sloping real term structure that the model ascribes to a rising real term premium while the average expected real short rates are relatively flat. A decomposition of the break-even inflation shows that the unconditional term structure of the inflation premium is increasing with maturity and most of the variance in the short end is due to expected inflation. However, in the long end, most of it is due to the inflation term premium.
@article{nathan2018decomposing,title={Decomposing the Term Structure of Interest Rates: Evidence from a Small Open Economy},author={Nathan, Daniel},dimensions={true},year={2018}}