Emil N. Siriwardane

Assistant Professor of Business Administration

Emil Siriwardane is an assistant professor of business administration in the Finance Unit. He teaches the Finance II course in the MBA required curriculum.

Professor Siriwardane’s research interests lie in asset pricing, the interplay between macroeconomics and finance, and financial intermediation. In recent work, he has studied how the risk-bearing capacity of large financial institutions impacts the pricing of credit risk in credit default swap markets.

Professor Siriwardane earned his PhD in finance from the Stern School of Business at New York University and a BSE in operations research and financial engineering from Princeton University.

Working Papers

  1. Precautionary Savings in Stocks and Bonds

    Carolin E. Pflueger, Emil Siriwardane and Adi Sunderam

    We document a strong and robust relation between the one-year real rate and precautionary savings motives, as measured by the stock market. Our novel proxy for precautionary savings, based on the difference in valuations between low- and high- volatility stocks, explains 37% of variation in the real rate. In addition, the real rate forecasts returns on the low-minus-high volatility portfolio, though it appears unrelated with measures of the quantity of risk. Our results suggest that precautionary savings motives, and thus the real rate, are driven by time-varying attitudes towards risk. We rationalize these findings in a stylized model with segmented investor clienteles and habit formation.

    Keywords: Interest Rates;


    Pflueger, Carolin E., Emil Siriwardane, and Adi Sunderam. "Precautionary Savings in Stocks and Bonds." Harvard Business School Working Paper, No. 17-040, November 2016. View Details
  2. The Probability of Rare Disasters: Estimation and Implications

    Emil Siriwardane

    I analyze a rare disasters economy that yields a measure of the risk neutral probability of a macroeconomic disaster, p*t. A large panel of options data provides strong evidence that p*t is the single factor driving option-implied jump risk measures in the cross section of firms. This is a core assumption of the rare disasters paradigm. A number of empirical patterns further support the interpretation of p*t as the risk-neutral likelihood of a disaster. First, standard forecasting regressions reveal that increases in p*t lead to economic downturns. Second, disaster risk is priced in the cross section of U.S. equity returns. A zero-cost equity portfolio with exposure to disasters earns risk-adjusted returns of 7.6% per year. Finally, a calibrated version of the model reasonably matches the (i) sensitivity of the aggregate stock market to changes in the likelihood of a disaster and (ii) loss rates of disaster risky stocks during the 2008 financial crisis.

    Keywords: Financial Markets; Forecasting and Prediction; Financial Crisis; Macroeconomics;


    Siriwardane, Emil. "The Probability of Rare Disasters: Estimation and Implications." Harvard Business School Working Paper, No. 16-061, November 2015. View Details
  3. Concentrated Capital Losses and the Pricing of Corporate Credit Risk

    Emil N. Siriwardane

    Using proprietary data on all credit default swap (CDS) transactions in the U.S. from 2010 to 2014, I show that a firm's CDS spreads are driven by capital fluctuations of that firm's net protection sellers. Capital fluctuations of sellers account for 10% of the time-series variation in spread changes, a significant amount given that observable firm and macroeconomic factors account for less than 16% of variation during this span. Sellers of protection are also highly concentrated, with five sellers responsible for nearly half of net selling. This concentration leads to market fragility—losses at the largest sellers have an outsized impact on CDS pricing. These findings suggest a high degree of short-run market segmentation and support theories where capital market frictions play a first-order role in determining market prices.

    Keywords: credit risk; derivatives; capital markets; Credit Derivatives and Swaps; Financial Institutions; Credit; Capital Markets;


    Siriwardane, Emil N. "Concentrated Capital Losses and the Pricing of Corporate Credit Risk." Harvard Business School Working Paper, No. 16-007, July 2015. (Revised July 2016.) View Details
  4. Concentrated Capital Losses and the Pricing of Corporate Credit Risk—Online Appendix

    Emil N. Siriwardane

    This appendix contains the following supplements to the main text: (i) additional facts regarding the size and concentration of the CDS market; (ii) some analysis relating buyer and seller capital to the CDS-bond basis; (iii) a discussion and some support evidence as to why capital might be slow moving in the CDS market; (iv) supportive analysis of the impact of the 2011 Japanese tsunami on CDS markets; and (v) a discussion of why the role of dealers as prime brokers does not impact the stylized facts and results presented throughout the paper.

    Keywords: credit risk; derivatives; financial institutions; Credit Derivatives and Swaps; Financial Institutions; Credit; Capital Markets;


    Siriwardane, Emil N. "Concentrated Capital Losses and the Pricing of Corporate Credit Risk—Online Appendix." Harvard Business School Working Paper, No. 16-008, July 2015. (Revised July 2016.) View Details
  5. Structural GARCH: The Volatility-Leverage Connection

    Robert F. Engle and Emil N. Siriwardane

    During the financial crisis, financial firm leverage and volatility both rose dramatically. Consequently, institutions are being asked to reduce leverage in order to reduce risk, though the effectiveness depends upon the role of capital structure in volatility. To address this question, we build a statistical model of equity volatility that accounts for leverage. Our approach blends Merton’s insights on capital structure with traditional time-series models of volatility. Using our model we quantify how capital injections impact the risk of financial institutions and estimate firm-specific precautionary capital needs. In addition, the longstanding observation that volatility is more responsive to negative shocks than positive is shown to be less a consequence of actual leverage than it is of risk premiums.

    Keywords: Volatility; leverage; credit risk; crisis management; Volatility; Credit; Financial Crisis; Financial Institutions; Risk Management;


    Engle, Robert F., and Emil N. Siriwardane. "Structural GARCH: The Volatility-Leverage Connection." Harvard Business School Working Paper, No. 16-009, July 2015. (Revised October 2016.) View Details