Krista Schwarz

Biographical Summary

Krista Schwarz is Principal Economist in Monetary Affairs at the Federal Reserve Board, where she provides analytical leadership on monetary policy and financial stability topics (e.g. risk identification and policy transmission) and briefs the FOMC and the Board. Krista also represents the Board in inter-agency working groups (e.g. Treasury market resilience, FHLB/Reserve Bank collateral interoperability) and leads analysis and writing for core monetary policy products, including FOMC briefing materials and public-facing documents. Her work translates complex market dynamics into actionable insights for policymakers and market innovators.

Since joining the Fed in 2020, Krista has also served as Senior Economist for Finance in the Council of Economic Advisers (CEA) at the White House and held a visiting economist rotation in the Financial Stability division at the Board.

At the White House (2023-2024), she advised the CEA Chair on risks to U.S. financial markets and the economic outlook (e.g. emerging fintech standards, Basel III effects, Treasury market risk premia, and central clearing tradeoffs). Krista spearheaded a 50% reduction in the embargo period governing Presidential commentary on economic data releases.

In Financial Stability (2024-2025), she briefed the Board on funding risk and leverage and led these topics in the quarterly assessment of financial system vulnerabilities. Krista also represented the division in a system-wide working group that developed proposed amendments to the regulatory framework governing non-bank reserve accounts and assessed potential for interaction between these account balances and rate control objectives.

Prior to joining the Fed, Krista held a faculty appointment in the Finance Department of the Wharton School in Philadelphia for 11 years. She has published in top finance journals such as the Review of Financial Studies and the Journal of Financial and Quantitative Analysis, and engaged in public discourse on market and policy developments through interviews and roundtable discussions via radio, print, and podcast media. Through case-based class discussions, Krista taught MBAs and undergraduates key analytical concepts by using seminal market events to convey how incentives and constraints stemming from regulation and financial innovation drive consequential choices of issuers, intermediaries, and investors.

Her research, classroom, and policy work draws on her early-career market experience at the FRBNY for 6 years—executing the daily repo auctions to adjust reserve supply, investing the foreign currency reserves in euro repo and debt, and intervening in FX markets. First-hand experience in facing the constraints and incentives of financial market participants kept her research grounded and motivated her applied empirical approach to answering real-world questions. Connecting the dots across markets and over time in her teaching at Wharton sharpened Krista’s focus on the repeated feedback among policy and regulation, market innovation, balance sheets, and relative prices. Now in a policy role, Krista applies her broad lens to the specific objective at hand: monetary policy implementation, financial stability, and tradeoff assessments of proposed regulation.

Krista presents her research in academic seminars and conferences globally on topics inspired by outstanding policy questions. Her expertise is in empirical asset pricing, with a special interest in market structure and liquidity effects. She engages in professional outreach to strengthen collaboration among academics, policymakers, and financial market practitioners, and mentors early-career researchers navigating educational and career choices.

Krista has also worked at the World Bank, the European Commission in Luxembourg, and the Economics Bureau of the U.S. Embassy in Berlin. Her Ph.D. and M.Phil. in Finance and Economics are from Columbia University in New York, and her MA in International Policy and Economics is from the Johns Hopkins University (SAIS).

She lives with her husband and two children in Washington, D.C.

Krista Schwarz is a financial market structure expert with first-hand experience that bridges markets, research, and policy. Early in her career (pre-GFC), she traded repo, fed funds, debt, and FX at the Federal Reserve Bank of New York for 6 years. As finance faculty at the Wharton School for 11 years, she published in top academic journals and presented research globally. In policy since 2020, she has advised the Chair of the White House’s Council of Economic Advisers and briefed the Federal Reserve’s FOMC.

Her perspective—from inhabiting fundamentally different slices of the same market landscape—helps to distinguish true constraints from those assumed by a single institutional lens. The same patterns recur across Treasury and funding markets, policy and regulatory design (e.g. central clearing), risk and liquidity pricing, and financial innovation (e.g. tokenization). Krista is committed to helping shape future market structure by design rather than by default.

Research Summary

Within empirical asset pricing, I have a particular interest in price relationships that are unexplained in a classic no-arbitrage setting, which I characterize broadly as liquidity. My approach uses large datasets on quantities and prices to pin down and trace the effects of changes in market structure and investor constraints.

My work contributes to the literature on asset pricing anomalies by empirically identifying the drivers of anomalies, and investigating their transmission through market structure to pin down what friction or risk allows the effects to be amplified and sustained.

My work also contributes methodologically to risk premium estimation. The method of estimating risk premia can importantly determine whether a candidate asset pricing model is rejected or not.

Post-financial crisis policy has differed by market segment, regulatory authority, and timing, producing a steady stream of market structure shifts. The implications affect: (i) policy transmission, which relies on predictable asset pricing relationships, (ii) the cost-benefit tradeoffs of proposed regulatory changes, and (iii) the perceived risk-reward assessment of intermediary, issuer, and investor strategies. Shaped by experience on the trading desk, in the university seminar, and at the policy table, my research conveys simple intuition to help inform choices that shape our evolving financial market landscape.

Asset prices contain valuable information about the past, present, and future. Accurate interpretation helps to surface structural risks and opportunities that might not be otherwise evident. My research in empirical asset pricing centers on identifying and interpreting the drivers of asset price movements, distinguishing between risk pricing and non-risk-based frictions.

My aim is to provide financial market policymakers and participants with precise, comprehensive, and forward-looking information to guide their decisions. Market participants’ choices transmit the effects of regulation through their assessment of prevailing incentives and constraints. My work helps to ground decisions in a more complete understanding of the tradeoffs, given interactions among policy, balance sheets, and relative asset prices.

Latest Research

All-to-All Trading in the U.S. Treasury Markets (Chaboud, Golay, Cox, Fleming, Huh, Keane, Lee, Schwarz, Vega, and Windover, 2025, Economic Policy Review, 31(2): 1-27.)

Despite being the deepest and most liquid securities market in the world, the U.S. Treasury market has faced repeated episodes of dysfunction in recent years (e.g. March 2020), as the growth in Treasury debt outstanding has outpaced the capacity of dealers to intermediate trading. We examine "all-to-all" trading — allowing any market participant to trade directly with any other, without needing a dealer on at least one side of every trade — as a potential way to ease this intermediation constraint and bolster market resilience, increase competition among liquidity providers, and improve price transparency, particularly for less-liquid off-the-run securities.

Drawing on structured outreach with trading platforms, dealers, hedge funds, principal trading firms, and asset managers, we catalog the protocols already in use that exhibit some all-to-all attributes — anonymous request-for-quote, central limit order books, anonymous streaming, and match auctions — and consider the obstacles to their broader adoption. These include unclear clearing and counterparty risk, the limited suitability of some protocols for less-liquid securities, and whether liquidity demanders and suppliers see enough benefit to give up the certainty of established dealer relationships.

Predictable End-of-Month Treasury Returns (Hartley and Schwarz, working paper.)

We find an intriguing new anomaly in the U.S. Treasury market; the unconditional end-of-month excess return on U.S. Treasury coupon securities accounts for the entirety of the term premium (e.g. excess returns of around 20 basis points per month at the 10-year maturity). A trading strategy comprised a long Treasury position over just the last few days of the month, gives an annualized Sharpe Ratio of around 1. This is comparable to the risk-adjusted return for other leading anomalies in the literature (e.g. the foreign currency carry trade).

Relating flows to prices, by investor type, we find that index rebalancing helps to explain the anomalous timing of excess returns. We isolate the demand shock associated with the security's changing role in the Barclay's Aggregate Treasury Government Index. Investors that benchmark performance more closely show relatively greater net purchases of the new index additions.

The effect is not sustained in Treasury security prices, in contrast to the liquidity risk-pricing feedback loop detailed in Musto, Nini, Schwarz (2018). Index demand shocks do not appear to be incorporated into the fundamental value of the relative asset prices. Such shocks may grow as a larger share of investments shifts to passive funds that mechanically track index changes.

Select Publications and Illustrated Results

My work contributes to the literature on asset pricing amomalies by empirically identifying the drivers of anomalies, and investigating their transmission through market structure to pin down what friction or risk allows the effects to be amplified and sustained.

Notes on Bonds: Illiquidity Feedback During the Financial Crisis (Musto, Nini, and Schwarz, 2018, Review of Financial Studies, 31(8): 2983-3018.)

For instance, levered investors' demand for liquid securities contributes to the limits to arbitrage in fixed income markets. When leverage constraints are tightened, the frequency of trading in already liquid securities increases, widening the risk wedge between more- and less-liquid securities, thus allowing a relative price differential to arise and persist.

ANIMATION: U.S. Treasury yields split into two separate curves (liquid versus illiquid securities) in 2008-2009.

Treasury Market Liquidity Differential
Data updated through: August 2019

The dynamics of this feedback loop are driven by the interaction between the liquidity risk pricing of investors with heterogeneous security preferences (relating holding horizon to asset liquidity) and intermediaries facing inventory risk. Liquidity feedback between risk pricing and security characteristics gives a possible mechanism for multiple liquidity equilibria.

Animation: visualize limits to arbitrage over various holding periods; the precise timing of entering into an arbitrage matters more (less) for an investor with a relatively short (long) horizon.

Animation: the relative transaction costs of Treasury securities diverge by market liquidity profile.

Mind the Gap: Disentangling Credit and Liquidity in Risk Spreads (Schwarz, 2019, Review of Finance, 23(3): 557-597.)

In the Eurozone sovereign debt markets, I find that the role of liquidity risk in asset prices can be large, and it varies over time and in the cross section. This argues in favor of including a liquidity factor in asset pricing models.

K-Spread Measure of Market Liquidity
Data updated through: August 2019

In the Great Financial Crisis, liquidity risk explained more than one third of the average trough-to-peak sovereign bond yield spread widening. During the Sovereign Debt Crisis, the balance of risks shifted to credit. Interestingly, bond market liquidity is the largest contributor to interbank rates over both sample periods. This supports interpreting the market liquidity premia of a security as being closely linked to its funding value as collateral.

My work also contributes methodologically to risk premium estimation. The method of estimating risk premia can importantly determine whether a candidate asset pricing model is rejected or not.

Using Stocks or Portfolios in Tests of Factor Models (Ang, Liu, and Schwarz, 2020, Journal of Financial and Quantitative Analysis, 55(3): 709-750.)

In the standard two-stage Fama MacBeth framework there is a tradeoff in using individual test assets versus portfolio groupings of assets to estimate factor risk premia.

Assets are typically grouped into portfolios. The motivation for this is to increase the precision of the factor loading estimates. Since factor loadings are estimated with error, it makes sense that idiosyncratic error should be increasingly diversified away as more estimates are grouped into each portfolio.

On the other hand, individual test assets give the full cross section of information in the risk premium estimation, increasing efficiency. Also, there is no risk of mis-assigning asssets into portfolios, which could actually worsen bias.

In simulations, the mean square error (MSE) of risk premium estimates shows that using a small number of portfolios gives little benefit to bias and sacrifices much in terms of efficiency. Using a larger number of portfolios (at least 250) achieves the minimum MSE in some data settings, but the tradeoff shifts to favor using individual assets as the likelihood of incorrect portfolio assignment increases (e.g. due to sorting on estimated betas).