Guest Seminar 2010-present

Browse the archives below to find information and working papers from past guest seminars hosted by the department of finance.

Elisabeth Kempf

Date: Friday, January 25th

Time: 10:30am - 12:00pm

Location: CSOM 2-233

Title: Partisan Professionals: Evidence from Credit Rating Analysts

Author: Elisabeth Kempf, Margarita Tsoutsoura


Partisan bias affects the decisions of financial analysts. Using a novel hand-collected dataset that links credit rating analysts to party affiliations from voter registration records, we show that analysts not affiliated with the U.S. President's party are more likely to adjust corporate credit ratings. Our identification approach compares analysts with different party affiliations covering the same firm simultaneously, ensuring that differences in the fundamentals of rated firms cannot explain the results. The effect is more pronounced in periods of high partisan conflict and for frequently voting analysts. Our results suggest that partisan bias and political polarization distort U.S. firms' cost of capital.

Adrien Verdelhan

Date: Friday, February 8th

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: The Term Structure of Currency Carry Trade Risk Premia

Author: Hanno Lustig, Andreas Stathopoulos, Adrien Verdelhan


Fixing the investment horizon, the currency returns carry trades decrease as the maturity of the foreign bonds increases. The local currency term premia, which increases with maturity, offset the currency risk premia. The time-series predictability of foreign bond returns in dollars similarly declines with the bonds' maturities. Leading no-arbitrage models in international Nance cannot match the downward term structure of currency carry trade risk premia. We derive a simple preference-free condition that no-arbitrage models must satisfy to match the carry trade risk premia on long-term bonds.

Jonathan Zinman

Date: Friday, February 15th

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: We are all behavioral, more or less: Measuring and using consumer-level behavioral sufficient statistics

Author: Victor Stango and Jonathan Zinman


Can a sufficient behavioral statistic empirically capture cross-consumer variation in behavioral tendencies and help identify whether behavioral biases, taken together, are linked to material consumer welfare losses? Our answer is yes. We construct simple consumer-level behavioral sufficient statistics—“B-counts”—by eliciting seventeen potential sources of behavioral biases per person in a nationally representative panel in two separate rounds nearly three years apart. B-counts aggregate information on behavioral biases within the person. Almost all consumers exhibit multiple tendencies in patterns assumed by sufficient behavioral statistic models (a la Chetty) and with substantial variation across people. B-counts are stable within consumers over time, and that stability helps to address measurement error when using B-counts to model the relationship between biases, decision utility, and experienced utility. Conditional on classical inputs—risk aversion and patience, life-cycle factors and other demographics, cognitive and non-cognitive skills, and financial resources—B-counts strongly negatively correlated with both objective and subjective aspects of experienced utility. The results hold in much lower-dimensional models employing “Sparsity B-counts” based on bias subsets (a la Gabaix) and/or fewer covariates, illuminating lower-cost ways to use behavioral sufficient statistics to help capture the combined influence of multiple behavioral biases for a wide range of research questions and applications.

Victoria Ivashina

Date: Friday, February 22nd

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: Weak Credit Covenants

Author: Victoria Ivashina, Boris Vallee


Using novel data on 1,240 credit agreements for large corporate loans, we show that while including negative covenants that restrict new debt issuance, payments, asset sales, affiliate transactions, and investments is widespread, clauses that weaken these restrictions are almost as common. We measure the deductibles for the core covenants in terms of their potential impact on overall leverage and show that they are large and concentrated in already highly leveraged transactions. We analyze the cross-sectional variation in contractual weaknesses introduced through deductibles and carveouts to negative covenants and show that such contractual provisions are characteristic of leveraged buyouts and more prevalent when banks have a low skin in the game, or institutional capital is abundant in the loan market. An event study on a recent court decision enforcing weakening clauses suggests that such contractual design corresponds to a value transfer from creditors to shareholders.

Andres Liberman

Date: Friday, March 1st

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: Evidence from Consumer Credit Markets

Author: Andres Liberman, Christopher Neilson, Luis Opazo, Seth Zimmerman


This paper exploits a large-scale natural experiment to study the equilibrium effects of information restrictions in credit markets. In 2012, Chilean credit bureaus were forced to stop reporting defaults for 2.8 million individuals (21% of the adult population). We show that the effects of information deletion on aggregate borrowing and total surplus are theoretically ambiguous and depend on the pre-deletion demand and cost curves for defaulters and non-defaulters. Using panel data on the universe of bank borrowers in Chile and the deleted registry information, we implement machine learning techniques to measure changes in lenders’ cost predictions following deletion. Deletion reduces (raises) predicted costs the most for poorer defaulters (non-defaulters) with limited borrowing histories. Using a difference-in-differences design, we find that individuals exposed to increases in anticipated costs reduce borrowing by 6.4%, while those exposed to decreases raise lending by 11.8% following the deletion, for a 3.5% aggregate drop in borrowing. Using the difference-in-difference estimates as inputs into the theoretical framework, we find evidence that deletion reduced aggregate welfare under various assumptions about lenders’ pricing strategies.

Antony DeFusco

Date: Friday, March 8th

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: Regulating Household Leverage

Author: Anthony A. DeFusco, Stephanie Johnson, John Mondragon


This paper studies how credit markets respond to policy constraints on household leverage. Exploiting a sharp policy-induced discontinuity in the cost of originating certain high-leverage mortgages, we study how the Dodd-Frank “Ability-to-Repay” rule affected the price and availability of credit in the U.S. mortgage market. Our estimates show that the policy had only moderate effects on prices, increasing interest rates on affected loans by 10-15 basis points. The impact on quantities, however, was significantly more significant; we estimate that the policy eliminated 15 percent of the affected market and reduced leverage for another 20 percent of the remaining borrowers. This quantity reduction is much more significant than would be implied by plausible demand elasticities and is difficult to reconcile with a frictionless view of credit markets. Heterogeneity in the quantity response across lenders suggests that agency costs may have been a vital market friction contributing to the large overall effect, as the fall in lending was substantially larger among lenders relying on third parties to originate loans. Finally, while the policy succeeded in reducing leverage, our estimates suggest this effect would have only slightly reduced aggregate default rates during the housing crisis.

Nick Bloom

Date: Friday, March 29th

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: What Triggers Stock Market Jumps?

Author: Scott R. Baker, Nicholas Bloom, Steve Davis, Marco Sammon


We examine newspapers the day after major stock-market jumps to evaluate the proximate cause, geographic source, and clarity of these events from 1900 in the US and 1980 (or earlier) in 13 other countries. We find three main results. First, the United States plays an outsized role in global stock markets, accounting for 35% of jumps outside the US since the 1980s, far above its 15% share of GDP. This matches other evidence of the dominance of the US in global finance. Second, the clarity of the cause of stock market jumps has been increasing notably since 1900, as news and financial markets have become more transparent. Jump clarity predicts future stock returns volatility: Doubling the clarity index of a jump reduces future fluctuations by 68%. Third, hops caused by non-policy events (particularly macroeconomic news) lead to higher future stock volatility, while jumps caused by policy events (particularly monetary policy) reduce future stock volatility. This suggests while monetary policy surprises lead to stock-market leaps, they may reduce future volatility.

Carolin Pflueger

Date: Friday, April 5th

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: Macroeconomic Drivers of Bond and Equity Risks

Author: John Y. Campbell, Carolin Pflueger, and Luis M. Viceira


Our new model of consumption-based habit formation preferences generates loglinear, homoskedastic macroeconomic dynamics and time-varying risk premia on bonds and stocks. Consumers' first-order condition for the real risk-free interest rate is an exactly loglinear consumption Euler equation, commonly assumed in New Keynesian models. Estimating the model separately for 1979-2001 and 2001-2011 explains why the exposure of US Treasury bonds to the stock market changed from positive to negative. A change in the comovement between in inflation and the output gap explains changing bond risks, but only when risk premia change endogenously as predicted by the model.

Adofo De Motta

Date: Friday, April 19th

Time: 10:30am - 12:00pm

Location: CSOM 2-224

Title: Risk-Taking and Coordination Failures

Author: Adolfo De Motta and Matthieu Bouvard


We study an economy where demand spillovers make firms' production decisions strategic complements. Firms have access to increasing returns to scale technology and choose their operating leverage ex-ante, trading off higher fixed costs for lower variable costs. Operating power governs firms' exposures to an aggregate labor productivity shock, the only source of economic uncertainty. In equilibrium, firms' operating leverage is too high because they do not internalize that an economy with higher aggregate influence is more likely to fall into a self-fulfilling compensation with inefficiently low output after a nasty productivity shock. Welfare losses from firms' failure to coordinate production ex-post are amplified by suboptimal risk-taking ex-ante. Excessive operating leverage contributes to systematic risk by magnifying the impact of productivity shocks on aggregate output.

Jonathan Berk

Date: Friday, April 26th

Time: 10:30am - 12:00pm

Location: CSOM 4-300D

Title: Regulation of Charlatans in High-Skill Professions

Author: Jonathan B. Berk and Jules H. van Binsbergen


We model a market for a skill that is in short supply and high demand, where the presence of charlatans (professionals who sell a service that they do not deliver on) is an equilibrium outcome. We use this model to evaluate these markets' standards and disclosure requirements. We show that reducing the number of charlatans through regulation decreases consumer surplus. Although both standards and disclosure drive charlatans out of the market, consumers are still left worse off because of reduced competition amongst producers. Producers, conversely, strictly benefit from the regulation, implying that the code we observe in these markets likely derives from producer interests. Using these insights, we study the factors that drive the cross-sectional variation in charlatans across professions. Professions with weak trade groups, skills in larger supply, shorter training periods, and less informative signals regarding the professional’s skill are more likely to feature charlatans.

Emil Verner

Date: Friday, September 7th

Time: 10:30am - 12:00pm

Location: CSOM 2-233

Title: Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis

Author: Emil Vernery Gyozo Gyongyosi


We examine the real economic consequences of a sudden increase in household debt burdens by exploiting spatial variation in the prevalence of household foreign currency debt during Hungary's late-2008 currency crisis. The increase in debt burdens leads to higher default rates and a collapse in spending. These responses translate into a worse local recession and depressed house prices. A 10-point increase in debt-to-income raises the unemployment rate by 0.6 percentage points, driven by employment losses at non-exporting firms. Consistent with demand externalities of risky debt financing, regional foreign currency debt has negative spillover effects on nearby borrowers with only domestic currency debt.

Sheridan Titman

Date: Friday, September 14th

Time: 10:30am - 12:00pm

Location: CSOM 2-233

Title: Urban Vibrancy and Firm Value Creation

Author: Casey Douhal, Christopher A. Parsons, and Sheridan Titman


City-level differences in industry-adjusted Tobin’s q, an estimate of the value created for shareholders, are large and have widened sharply over the last twenty years. Proxies for a city’s appeal to high-skill workers, such as existing education rates and favorable weather, are strongly associated with Tobin’s q, both in levels and changes. These results indicate that shareholders have recently captured a bigger part of the benefits associated with superior locations. The higher stock prices of firms in these locations appear to be driven by future growth opportunities rather than improvements in current operating efficiency.

Andrea Eisfeldt

Date: Friday, September 21st

Time: 11:00am - 12:30pm

Location: CSOM 2-233

Title: Human Capitalists

Author: Andrea Eisfeldt, Antonio Falato and Mindy Xiaolan


Human capitalists are compensated with profit sharing and shared firm ownership. Much like traditional equity holders, human capitalists earn dividends and capital gains from US firms' growing profit streams. In this paper, we use theory and data to quantify the macroeconomic importance of human capitalists for accurate measurement shares of value-added and income shares in the US corporate sector. We explain why, given empirical patterns of compensation and firm ownership in the US, along with the presence of firm profits, value-added, and income shares, can deviate in a way that benefits the income of human capitalists. Using two measures of non-wage income as a share of output, we show that since the 1960s, human capitalists have become an increasingly important share of value-added and income in the US. A parsimonious model of ``technological complementarity" between physical capital and human capitalists can replicate this fact as a response to investment-specific technological change.

Leonid Kogan

Date: Friday, September 28th

Time: 11:00am - 12:30pm

Location: CSOM 2-233

Title: Technological Innovation and the Distribution of Labor Income Growth

Author: Leonid Kogan. Dimitris Papanikolaou. Lawrence D. W. Schmidt, Jae Song


We examine how the distribution of worker earnings growth shifts following major technological advances by the firm or its competitors, using administrative data from the US. Specifically, we find that own-firm innovation is associated with a modest increase in worker earnings growth, while innovation by competing firms is related to lower future worker earnings. Importantly, these earnings changes are asymmetrically distributed across workers: both gains and losses are concentrated on a subset of workers, which implies that the distribution of worker earnings growth rates becomes more right- or left-skewed following innovation by the firm, or its competitors, respectively. These elects are particularly strong for the highest-paid workers. Our results suggest innovation is associated with a substantial increase in the labor income risk, especially for workers at the top of the earnings distribution. Our simulations reveal that the increased disparity in innovation outcomes across firms in the 1990s can account for a significant part of the rise in income inequality. In sum, our evidence is consistent with the view that innovation leads to substantial reallocation in labor income across workers through creative destruction in the product market and displacement of their human capital.

Gilles Chemla

Date: Friday, October 19th

Time: 10:30am - 12:00pm

Location: CSOM 2-233

Title: Equilibrium Counterfactuals: Counterfactuals:  Joint Estimation and Control in Structural Models

Author: Gilles Chemla


The objective of applied structural microeconometrics is to identify policy-invariant parameters so alternative policies can be assessed. As we show, the practice of treating policy changes
as zero probability "counterfactuals" violates rational expectations: Agents inside the model understand policy changes are positive probability events which the structural estimation is
intended to inform. We analytically characterize the implications for moment-based parameter inference. As shown, if a policy change is optimal, the inference is biased. Further, the standard identifying assumption, constant partial derivative sign, is neither necessary nor sufficient with policy control. We offer an alternative identifying assumption: constant total differential sign
with inference-policy feedback. It is shown that under this assumption, rational expectations can be imposed computationally (algorithmically) to generate unbiased inference and optimal policy.
The quantitative importance of these effects in applied settings is illustrated by calibrating the Leland (1994) model to the Tax Cuts and Jobs Act of 2017.

Jaroslav Borovicka 

Date: Friday, November 30th

Time: 10:30am - 12:00pm

Location: CSOM 1-114

Title: Risk Premia and Unemployment Fluctuations

Author: Jaroslav Borovicka


We study the role of fluctuations in discount rates for the joint dynamics of expected returns in the stock market and employment dynamics. We construct a non-parametric bound on the predictability and time-variation in conditional volatility of the firm's profit flow that must be met to rationalize the observed business-cycle fluctuations in vacancy-filling rates. A stochastic discount factor consistent with conditional moments of the risk-free rate and expected returns on risky assets only partly alleviates the need for an excessively volatile model of the expected profit flow.

Urban Jermann

Date: Friday, March 23rd

Time: 10:30am - 12:00pm

Location: CSOM L-122

Title: Negative Swap Spreads and Limited Arbitrage

Author: Urban Jermann


Since October 2008, fixed rates for interest rate swaps with a thirty-year maturity have been mostly below treasury rates with the same maturity. Under standard assumptions, this implies the existence of arbitrage opportunities. This paper presents a model for pricing interest rate swaps where frictions for holding bonds limit arbitrage. I show analytically that negative swap spreads should not be surprising. In the calibrated
model, swap spreads can reasonably match empirical counterparts without the need for large demand imbalances in the swap market. Empirical evidence is consistent with the relation between term spreads and swap spreads in the model. Keywords: Swap spread, limited arbitrage, fixed income arbitrage (JEL: G12, G13).

Toni Whited

Date: Friday, March 30th

Time: 10:30am - 12:00pm

Location: CSOM L-122

Title:  Information Distortion, R&D, and Growth

Authors: Stephen J. Terry, Toni M. Whited,  Anastasia A. Zakolyukina


Does firms’ opportunistic information disclosure affect investment in R&D? To answer this question, we estimate a dynamic model of long-term growth based on innovation through R&D. In the model, managers have an incentive to distort observable earnings, where this incentive arises from the combination of incomplete investor information and convex manager compensation incentives based on the stock price. Managers distort earnings either by misreporting or by deviating from the first-best R&D policy. The model fits a broad set of moments related to both real R&D expenditures and earnings restatements. Counterfactuals show that regulations preventing information concealment incentivize managers to distort real R&D investment, whose volatility rises by 10%. This excess volatility lowers firm value by 0.5%.

Owen Zidar

Date: Friday, April 6th

Time: 10:30am - 12:00pm

Location: CSOM L-122

Title:   Who Profits from Patents? Rent-sharing at Innovative Firms

Authors:  Pat Kline, Neviana Petkova, Heidi Williams and Owen Zidar


This paper analyzes how patent-induced shocks to labor productivity propagate into worker compensation using a new linkage of US patent applications to US business and worker tax records. We infer the causal effects of patent allowances by comparing firms whose patent applications were initially allowed to those whose patent applications were initially rejected. To identify patents that are ex-ante valuable, we extrapolate the excess stock return estimates of Kogan et al. (2017) to the full set of accepted and rejected patent applications based on predetermined firm and patent application characteristics. An initial allowance of an ex-ante valuable patent generates substantial increases in firm productivity and worker compensation. By contrast, initial allowances of lower ex-ante value patents yield no detectable effects on firm outcomes. On average, workers capture 29 cents of every dollar of patent-induced operating surplus. This share is larger for men, employees who are listed as inventors, and firm stayers present since the year of application. Patent allowances lead firms to increase employment, but we find minimal evidence of quality upgrading or selection bias in workforce composition. Surprisingly, entry wages are insensitive to patent decisions, suggesting that the large earnings responses of incumbent workers may reflect performance pay.

Ramana Nanda

Date: Friday, April 13th

Time: 10:30am - 12:00pm

Location: CSOM L-122

Title:  House Money and Entrepreneurship

Authors: Sari Pekkala Kerr, William R. Kerr, Ramana Nanda


We exploit legal variation in the pledgeability of housing collateral, together with
Microdata from the US Census Bureau to study the importance of the collateral channel in
entrepreneurship. We Önd that increases in the ability to borrow against one home leads to
more entrepreneurship, but the overall magnitude is small. For example, a mortgage reform
unlocking housing collateral in Texas led to just 0.6% higher employment in start-ups for every
10% increase in house prices. We trace this limited response to most entrepreneurs not relying
on home equity to Önance their businesses. Moreover, among those who do use home equity
to Önance their business, most homeowners already have su¢ client collateral to pledge for loans
even in Unlocking the absence of house price increases. We estimate an overall link between house price gains
and entrepreneurship that is Öve or ten times larger than the collateral, but traces much
of this relationship to intra-city aggregate demand and individual-level covariates. Our results
provide a more nuanced picture of housing collateral in driving entrepreneurship: While housing
Collateral is important for some entrepreneurs to access bank credit; it plays a small part
in the overall way in which house price increases connect to entrepreneurship.

Kelly Shue

Date: Friday, April 20th

Time: 10:30am - 12:00pm

Location: CSOM L-122

Title:   Leverage-Induced Fire Sales and Stock Market Crashes

Authors:  Jiangze Bian, Zhiguo He, Kelly Shue, and Hao Zhou


This paper provides direct evidence of leverage-induced fire sales contributing to a major stock market crash. Our analysis uses proprietary account-level trading data for brokerage- and shadow-financed margin accounts during the Chinese stock market crash in the summer of 2015. We find that margin investors heavily sell their holdings when their account-level leverage edges toward their maximum leverage limits, controlling for stock-date and account-fixed effects. Stocks that are disproportionately held by investors facing financial constraints experience high selling pressure and abnormal price declines that subsequently reverse over the next 40 trading days. Unregulated shadow-financed margin accounts, facilitated by FinTech lending platforms, contributed more to the market crash even though these shadow accounts had higher leverage limits and held a smaller fraction of market assets relative to regulated brokerage accounts.

Martin Schmalz

Date: September 7th, 2017

Room: CSOM 2-224

Title: (Why) do central banks care about their profits?

Authors: Igor Goncharov, Vasso Ioannidou, and Martin Schmalz*


We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits. The discontinuity in the profit distribution is (i) more pronounced amid greater political or public pressure, the public’s receptiveness to more extreme political views, and agency frictions arising from governor career concerns, but absent when no such factors are present, and (ii) correlated with more lenient monetary policy inputs and greater inflation. These findings indicate that profitability concerns, while absent from standard theoretical models of central banking, are both present and effective in practice and inform a theoretical debate about monetary stability and the effectiveness and riskiness of non-traditional central banking.

Jianjun Miao

Date: September 22nd, 2017

Room: CSOM 2-233

Title:  Asset Bubbles and Monetary Policy

Authors: Feng Dong, Jianjun Miao and Pengfei Wang


We provide an infinite-horizon model of rational asset bubbles in a dynamic new Keynesian framework. Entrepreneurs are heterogeneous in investment efficiency and face credit constraints. They can trade land as an asset, which also serves as collateral when borrowing from banks with reserve requirements. Land commands a liquidity premium, and a land bubble can emerge. Monetary policy can affect the conditions for the existence of a bubble, its steady-state size, and its dynamics, including the initial size. The ‘leaning against the wind’ interest rate policy reduces bubble volatility, but it could also raise inflation volatility. Whether monetary policy should respond to asset bubbles depends on the particular interest rate rule adopted by the central bank and on the type of exogenous shocks hitting the economy.

Nina Boyarchenko

Date: September 29th, 2017

Room: CSOM 2-233

Title: Taking Orders and Taking Notes: Dealer Information Sharing in Financial Markets

Authors: Nina Boyarchenko, David O. Lucca, and Laura Veldkamp


The use of order flow information by financial firms has come to the forefront of the regulatory debate. Central to this discussion is whether a dealer who acquires information by taking client orders can share that information. We explore how information sharing affects dealers, clients, and issuer revenues in U.S. Treasury auctions. Because one cannot observe alternative information regimes, we build a model, calibrate it to auction results data, and use it to quantify counterfactuals. We estimate that yearly auction revenues with full information sharing (with clients and between dealers) would be $5 billion higher than in a “Chinese Wall" regime in which no information is shared. When information sharing enables collusion, the collusion costs revenue, but prohibiting information sharing costs more. For investors, the welfare effects of information sharing depend on how information is shared. Surprisingly, investors benefit when dealers share information with each other, not when they share more with clients. For the market, when investors can bid directly, information sharing creates a new financial accelerator: Only investors with bad news bid through intermediaries, who then share that information with others. Thus, sharing amplifies the effect of negative news. Tests of two model predictions support the model’s key features.

Ron Kaniel

Date: November 3rd, 2017

Room: CSOM 2-233

Title: Relative Pay for Non-Relative Performance: Keeping up with the Joneses with Optimal Contracts

Authors: Peter M. DeMarzo, Ron Kaniel


We consider multi-agent contracting when agents have “keeping up with the Joneses” (KUJ) preferences. When a single principal can commit to a public contract, the optimal contract hedges agents’ relative wage risk without sacrificing efficiency, keeping output unchanged. Contracts appear inefficient, as performance seems inadequately benchmarked. With multiple principals or a principal that is unable to commit, a “rat race” emerges in which agents are more productive, but wages increase even more, reducing profits and undermining efficiency. Renegotiation exacerbates (enhances) inefficiency (efficiency) when KUJ effects are weak(strong). Public disclosure of contracts across firms can cause output to collapse.

Giorgia Piacentino

Date: November 17th, 2017

Room: CSOM 2-233

Title: Money Runs

Authors: Jason Roderick Donaldson, Giorgia Piacentino


We present a banking model in which bank debt circulates in decentralized secondary markets like banknotes did in the nineteenth century, and repos do today. We find that bank debt is susceptible to runs because secondary-market liquidity is subject to sudden, self-fulfilling dry-ups. When debt fails to circulate, it is redeemed on demand in a “money run.” Even though demandable debt exposes banks to costly runs, banks still choose to issue it: the option to redeem on demand increases secondary-market debt prices and hence increases primary-market debt capacity—i.e., dependability and traceability are complements, unlike in existing models.

March 10th, 2017

  David Yermack, NYU

 Where:  CSOM 2-213

  When: 1:00pm-2:30pm


 Ambiguity and The Trade-Off Theory of Capital Structure


We examine the importance of ambiguity, or Knightian uncertainty, in the capital structure
decision. We develop a static tradeoff theory model in which agents are both risk-averse and
ambiguity-averse. The model confirms the usual idea that increased risk uncertainty over
known possible outcomes arms to the use of less leverage. Conversely, greater ambiguity-the
Uncertainty over the probabilities associated with the outcomes leads firms to increase leverage.
Our empirical analysis provides results consistent with these predictions.

March, 31st, 2017

  Stijn Van Nieuwerburgh, NYU

 Where:  CSOM 2-233

  When: 10:30am-12:00pm


 A Macroeconomic Model with Financially Constrained Producers and Intermediaries


We evaluate the quantitative effects of macroprudential policy. To do so, we solve a general equilibrium model with three types of agents and a government. Borrower-entrepreneurs produce output financed with long-term debt issued by financial intermediaries, subject to a leverage constraint. Intermediaries fund these loans by combining deposits and their own equity and are subject to a regulatory capital constraint. Savers provide funding to banks and to the government. Both entrepreneurs and banks make optimal default decisions. The government issues debt to finance budget deficits and to pay for bank rescue operations. We solve for macroeconomic quantities, the price of capital, the yield on safe bonds, and the credit spread. We study how financial and non-financial recessions differ, show that high credit spreads forecast future declines in economic activity, and study macro-prudential policies. Policies that limit corporate leverage and financial leverage reduce welfare. Their benefits for financial and macroeconomic stability are outweighed by the costs of a smaller-sized economy. The two types of macroprudential policies have different implications for the wealth distribution.

April 7th. 2017

  Brent Neiman, Chicago

 Where:  CSOM 2-233

  When: 10:30am-12:00pm


Unpacking Global Capital Flows: A Micro-Data Approach to Macro Facts


April 14th, 2017

  Manuel Adelino, Duke

 Where:  CSOM 2-233

  When: 10:30am-12:00pm


Are Lemons Sold First? Dynamic Signaling in the Mortgage Market


A central result in the theory of adverse selection in asset markets is that informed sellers can signal quality and obtain higher prices by delaying trade. This paper provides some of the first evidence of a signaling mechanism through trade delays using the residential mortgage market as a laboratory. We find a strong relationship between mortgage performance and time to sell for privately securitized mortgages. Additionally, deals made up of more seasoned mortgages are sold at lower yields. These effects are strongest in the “Alt-A” segment of the market, where mortgages are often sold with incomplete hard information. 

April 28th, 2017

  Stefano Giglio, Chicago

Title: Inference on Risk Premia in the Presence of Omitted Factors


We propose a three-pass method to estimate the risk premia of observable factors in a linear asset pricing model, which is valid even when the observed factors are just a subset of the true factors that drive asset prices. Standard methods to estimate risk premia are biased in the presence of omitted-priced factors correlated with the observed factors. We show that the risk premium of a factor can be identified in a linear factor model regardless of the rotation of the other control factors as long as they together span the space of true factors. Motivated by this rotation invariance result, our approach uses principal components to recover the factor space and combines the estimated principal components with each observed factor to obtain a consistent estimate of its risk premium. This methodology also accounts for potential measurement error in the observed factors and detects when such factors are spurious or even useless. The methodology exploits the blessings of dimensionality, and we, therefore, apply it to a large panel of equity portfolios to estimate risk premia for several workhorse linear models.

May 5th, 2017

  Lorenzo Garlappi, UBC

Title: The Carry Trade and Uncovered Interest Parity when Markets are Incomplete


Many of the leading models of the carry trade imply that, contrary to the empirical evidence,
a country's currency depreciates in times of high consumption and output growth, a manifestation
of the Backus and Smith (1993) puzzle. We propose a modi cation of these models to account for
financial market incompleteness and show that such a modification can induce a positive correlation
between currency appreciation and consumption or output growth while, at the same time, helping resolve the Backus and Smith (1993) and Brandt, Cochrane, and Santa-Clara (2006) puzzles.
Furthermore, in many of the existing models, the assumed fundamental cross-country differences
(output volatility, growth, and risk attitude) responsible for interest rate differentials also appear
at odds with the data. We document that default risk and financial openness are strongly related
to interest rate differentials and carry trade points in the data. In the incomplete markets model we
propose is consistent with these novel empirical facts.

FALL 2016

Friday, September 16th, 2016

  Xiaoyun Yu, Indiana

  Where:  CSOM 2-215

  When: 10:30am-12:00pm


  Transporting Transparency: Director Foreign Experience and Corporate Information Environment


This paper examines how board directors’ foreign experience affects a firm’s information environment in emerging markets. Using the staggered introduction of a policy in China to attract overseas returnees as a natural experiment, we document a positive, causal effect of directors’ foreign experience on the informativeness of the firm’s stock price. We examine potential channels and find that after individuals with foreign experience join the board, earnings transparency increases, and firms are more likely to hire high-quality auditors and engage in a voluntary disclosure. Furthermore, the information benefit brought by directors with foreign experience spills over to peer firms. These findings provide direct evidence on how board directors help shape corporate transparency in emerging markets.

October 7th, 2016

  Nobu Kiyotaki, Princeton

  Where:  CSOM L-110

  When: 10:30am-12:00pm


  The Great Escape?  A Quantitative Evaluation of the Fed's Liquidity Facilities


We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities and ask: Can a shock to the liquidity of private paper lead to a collapse in short-term nominal interest rates and a recession like the one associated with the 2008 U.S. financial crisis? Once the nominal interest rate reaches the zero bound, what are the effects of interventions in which the government provides liquidity in exchange for illiquid private paper? We find that the effects of the liquidity shock can be large and show some numerical examples in which the liquidity facilities prevented a repeat of the Great Depression in 2008-2009.

November 11th, 2016

  Ohad Kadan, Washington

  Where: CSOM 2-219

  When: 10:30am-12:00pm


  Estimating the Value of Information


We derive a general expression for the value of information to a small price-taking investor in a dynamic environment and provide a framework for its estimation from index options. We apply this framework and estimate that a consumer investor with commonly-used preference parameters would pay 1 to 4 percent of her wealth to preview and act on key macroeconomic indicators (GDP, unemployment, etc.). The value of information increases with the time discount factor decreases with risk aversion and increases with the elasticity of intertemporal substitution. Rational expectations (or lack thereof) play an important role in the value of information.

November 18th, 2016

  Nicolas Crouzet, Northwestern

  Where: CSOM L-114

  When: 10:30am-12:00pm


  Default, Debt Maturity and Investment Dynamics


This paper studies the optimal maturity structure of debt in a dynamic investment model with financial frictions. External financing is costly because firms have limited liability, and default entails deadweight output losses. Firms operate long-term assets and may thus want to issue long-term debt in order to reduce short-term refinancing risk. However, a lack of commitment on the firms’ part makes long-term debt issuance costly relative to short-term debt. In theory, the optimal maturity structure of debt should trade off these two forces. In numerical calibrations of the model, however, short-term financing strongly dominates. Optimal borrowing policies in fact often involve active maturity shortening, in particular via debt repurchases. The optimality of short-term financing suggests that none of the benefits traditionally associated with long-term financing — such as addressing maturity mismatch — are quantitatively significant in “neo-classical” models of the firm.

December 9th, 2016

  David Sraer, Berkeley

Where:  CSOM 2-213

  When: 10:00am-12:30pm


Aggregating Well-Identified Estimates of Capital Constraints


This paper develops a framework to compute the aggregate effect of financing frictions by aggregating well-identified estimates of the effect of these frictions on firm-level outcomes. We consider a general equilibrium model with imperfect competition and heterogeneous firms facing frictions in the capital market. We derive a set of statistics sufficient to compute the aggregate effect of these frictions. These sufficient statistics can all be consistently estimated from the same valid experiment. We apply these formulas in two contexts – a simulated dataset where firms invest dynamically subject to a collateral constraint and an actual empirical setting where the effect of collateral values is identified through variations in local real estate prices – and offer, in both cases, a decomposition of how firm-level estimates translate into aggregate effects. This framework can be applied to other frictions affecting firms’ input choices, such as taxes, regulation, or imperfect competition.



Friday, March 25th, 2016

  Itay Goldstein, University of Pennsylvania

  Where: CSOM 2-215

  When: 10:30am - 12:00pm

  Title: Commodity Financialization: Risk Sharing and Price Discovery in Commodity Futures Markets

  Abstract: We study how commodity financialization affects trading behavior, prices, and welfare by affecting risk sharing and price discovery in futures markets. Our analysis highlights a supply channel through which the futures price feeds back into the later spot price. This feedback effect tends to reduce price efficiency but improve welfare. Consistent with recent evidence, we show that financial traders either provide or demand liquidity in the futures market, depending on the information environment, and that commodity financialization reduces the futures price bias through broadening risk sharing and injecting information into

Friday, April 1st, 2016

  Paige Ouimet, University of North Carolina

  Where: CSOM L-126

  When: 12:30pm - 2:00pm

  Title: Going Entrepreneurial? IPOs and New Firm Creation

  Abstract: Using matched employee-employer data from the US Census, we examine the impact of a successful initial public offering (IPO) on a firm’s existing employees and their future career choices. Using an instrumental variables strategy, we find strong evidence that going public induces employees to depart for start-ups. Moreover, this result is specific to start-ups. We find no change in the rate of employee departures for established firms. We suggest and find evidence consistent with two non-mutually exclusive mechanisms that can explain this pattern. First, following an IPO, many employees who received large stock grants in the past are able to cash out. This shock to employee wealth may allow employees to better tolerate the risks associated with joining a start-up. Alternatively, employees may leave in response to an undesirable cultural change following the IPO. Our results suggest that the recent declines in IPO activity and new firm creation in the U.S. may be causally linked. The recent decline in IPOs means fewer workers move to startups, decreasing overall new firm creation in the economy.

Friday, April 1st, 2016

  Dimitri Vayanos, London School of Economics and Political Science

  Where: CSOM 2-215

  When: 10:30am - 12:00pm

  Title: Going Entrepreneurial? IPOs and New Firm Creation

  Abstract: We study the joint determination of fund managers' contracts and equilibrium asset prices. Because of agency frictions, investors make managers' fees more sensitive to performance and benchmark performance against a market index. This makes managers unwilling to deviate from the index and exacerbates price distortions. Because trading against overvaluation exposes managers to a greater risk of deviating from the index than trading against undervaluation, agency frictions bias the aggregate market upwards. They can also generate a negative relationship between risk and return because they raise the volatility of overvalued assets. Socially optimal contracts provide steeper performance incentives and cause larger pricing distortions than privately optimal contracts.

Friday, April 22nd, 2016

  Philipp Schnabl, New York University

  Where: CSOM 2-215

Friday, April 29th, 2016

  Sam Hanson, Harvard

  Where: CSOM 1-135

  When: 12:00pm - 1:30pm

  Title: Asset Price Dynamics in Partially Segmented Markets

 Abstract: How do supply shocks in one financial market affect prices in other markets? We develop a model in which capital moves quickly within each asset class but slowly between asset classes. While most investors specialize in a single market, a handful of generalists can gradually reallocate capital across markets. When a supply shock arrives, prices of risk in the impacted market become disconnected from those in others. Over the long run, capital flows between markets and prices of risk become more closely aligned. While prices in the impacted market initially overreact to shocks, under plausible conditions, prices in related markets underreact.

Friday, May 6th, 2016

  Hanno Lustig, Stanford

  Where: CSOM 2-215

  When: 10:30am - 12:00pm

  Title: National Income Accounting When Firms Insure Workers

 Abstract: We analyze national income accounting in an equilibrium model of industry dynamics with long-term contracts between risk-averse workers and heterogeneous firms. In our model, firms insure workers against firm-specific productivity shocks. We use this model as a laboratory for analyzing the impact of firm-level risk on the stationary distribution of rents. An increase in firm-level risk always increases the aggregate capital share in the economy but may lower the average firm's capital share. Because of selection, the aggregate capital share reported in national income accounts produces a biased estimate of the ex-ante profitability of firms, which determines compensation. Workers effectively pay a larger insurance premium to the owners of capital.

FALL 2015


Friday, September 18th, 2015

 Edward Prescott, Arizona State University


  Where: CSOM 2-215

  When: 10:30am - 12:00pm

  Title: Equilibrium with Mutual Organizations in Adverse Selection Economies

  Abstract: We develop an equilibrium concept in the Debreu (1954) theory of value tradition for a class of adverse selection economies, which includes the Spence (1973) signaling and Rothschild-Stiglitz (1976) insurance environments. The equilibrium exists and is optimal. Further, all equilibria have the same individual type utility vector. The economies are large, with a finite number of types that maximize expected utility on an underlying commodity space. An implication of the analysis is that the invisible hand works for this class of adverse selection economies.

Friday, October 2nd, 2015

Christopher Polk, London School of Economics 

  Where: COSM 2-215

  When: 10:30am-12:00pm


  Abstract: We decompose the abnormal profits associated with well-known patterns in the cross-section of expected returns into their overnight and intraday components. We show that, on average, all of the abnormal returns on momentum strategies remarkably occur overnight, while the abnormal profits on the other trading strategies we consider occur intraday. These patterns are extremely robust across subsamples and indeed are stronger for large-cap and high-price stocks. Furthermore, we find that all of the variables that are anomalous with respect to the Fama-French-Carhart model have risk premiums overnight that partially offset their much larger intraday average returns. Indeed, a closer look reveals that in every case, a positive risk premium is earned overnight for the side of the trade that might naturally be deemed as riskier. In fact, we show that an overnight CAPM explains much of the cross-sectional variation in average overnight returns we document. Finally, we argue that investor heterogeneity may explain why momentum profits tend to accrue overnight. We first provide evidence that, relative to individuals, institutions prefer to trade during the day and against the momentum characteristic. We then highlight conditional patterns that reveal a striking tug of war. Either in the time series, when the amount of momentum activity is particularly low, or in the cross-section, when the typical institution holding a stock has a particularly strong need to rebalance, we find that momentum returns are even larger overnight and more strongly reverse during the day. Both cases generate variation in the spread between overnight and intraday returns on the order of 2 percent per month.

Friday, October 9th, 2015

Seth Pruitt, Arizona State University 

  Where: CSOM 2-215

  When: 10:30am-12:00pm

 Title: Estimating Market Risk Factors Incorporating Stock Characteristics

 Abstract: We estimate market risk factors using data on stocks' returns and characteristics. The new framework combines the insight of characteristic-based portfolio-spread estimators (e.g. Fama-French, Carhart, etc.) with the statistical precision of APT-based principal-component (PC) estimators. Using monthly returns over 1927-2013 for about 10,000 stocks, our estimated factors reduce average absolute pricing errors by 1/2 and 1/3 relative to Carhart factors and PC factors, respectively. This suggests that stock characteristics can be viewed as altering assets' systematic risk exposure instead of giving rise to anomalous average returns. Simulation evidence suggests that our estimator more accurately estimates the true factor space in a finite sample. Importantly, our estimator is calculated virtually instantaneously.


Friday, October 16th, 2015

Joan Farre-Mensa, Harvard Business School

  Where: CSOM 2-215

  When: 10:30am-12:00pm

 Title: The Bright Side of Patents

Abstract: Motivated by concerns that the patent system is harming entrepreneurs and small inventors, this study investigates the bright side of patents. We examine whether patents help innovative start-ups grow, create jobs, and succeed using detailed micro data on all approved and rejected patent applications filed by U.S. start-ups at the U.S. Patent and Trademark Office (USPTO) between 2001 and 2009. We exploit the fact that patent applications are assigned quasi-randomly to USPTO examiners and instrument the probability that an application is approved with individual examiners’ approval rates. We find that start-ups whose first patent application is exogenously approved grow faster, create more jobs, and innovate more than otherwise similar firms whose first application is rejected. We also show that exogenous delays in the patent review process significantly reduce growth, job creation, and innovation, even when patent applications are eventually approved. Our results suggest that patent approval acts as a catalyst that sets a start-up on a growth path by facilitating its access to venture capital—particularly for those surrounded by high uncertainty and information asymmetry.

Friday, November 20th, 2015

 Sriya AnbilFederal Reserve 

  Where: CSOM 2-215

  When: 10:30am-12:00pm

  Title: Managing Stigma During a Financial Crisis

  Abstract: How should regulators design effective emergency lending facilities to mitigate stigma during a financial crisis? I explore this question using data from an unexpected disclosure of a partial list of banks that secretly borrowed from the lender of last resort during the Great Depression. I find evidence of stigma in that depositors withdrew more deposits-to-assets from banks included on the list in comparison to banks left off the list. However, when all banks were simultaneously revealed to have borrowed, there was no stigma. Overall, the results suggest that an emergency lending facility that reveals bank identities simultaneously will mitigate stigma. (JEL Codes: G01, G21, G28)

Friday, December 11th, 2015,  

  Marcus Opp, University of California Berkeley

  Where: CSOM 2-215

  When: 10:30am-12:00pm

  Title: Macroprudential Bank Capital Regulation in a Competitive Financial System

  Abstract: We propose a general equilibrium model to examine the systemwide effects of bank capital requirements when firms can substitute financing from public markets and banks. In our model, banks can serve a socially beneficial role of monitoring firms that are credit rationed by public markets, but banks' access to deposit insurance creates socially undesirable risk-shifting incentives. Capital ratio requirements reduce banks’ risk-taking incentives but can also constrain banks’ balance sheets. Our framework allows full flexibility on the specification of the cross-sectional distribution of firm types, banks’ monitoring advantages vis-a-vis public markets, and the distribution of signals available to regulators. Absent balance sheet effects, increases in equity-ratio requirements unambiguously improve the banking system's welfare and stability. However, when bank capital is scarce, increased equity-ratio requirements may cause banks to substitute socially valuable projects for high-risk investments. Our model provides conceptual guidance on how the effects of regulatory policies depend on the development of public markets, the cross-sectional distribution of firms, and the risk signals available to regulators.

Friday, December 18th, 2015

Gian Luca Clementi, New York University, Stern School of Business

  Where: TBD

  When: 10:30am-12:00pm


Andrew Ang, Columbia University

Estimating Private Equity Returns from Limited Partner Cash Flows

We introduce a methodology to estimate the historical time series of returns to investment in private equity. The approach requires only an unbalanced panel of cash contributions and distributions accruing to limited partners, and is robust to sparse data. We decompose private equity returns into a component due to traded factors and a time-varying private equity premium. We find strong cyclicality in the premium component that differs according to fund type. The time-series estimates allow us to directly test theories about private equity cyclicality, and we find evidence in favor of the Kaplan and Strömberg (2009) hypothesis that capital market segmentation helps to determine the private equity premium.


Adriano Rampini, Duke University

Household Risk Management

Households' insurance against adverse shocks to income, expenditures for health and other spending needs, and the value of assets (that is, household risk management) is limited and at times completely absent, in particular for poor households. We explain this basic pattern in household insurance in an infinite horizon model in which households have access to complete markets subject to collateral constraints resulting in a trade-off between risk management concerns and the financing needs for consumption and durable goods purchases. Insurance, which is typically thought of as trade across states, is linked to intertemporal trade, that is, consumption smoothing and financing, when households' promises to pay are restricted by limited enforcement. Household risk management is increasing in household net worth and income, under quite general conditions, in economies with income risk and durable goods price risk. Household risk management is precautionary in the sense that an increase in uncertainty increases risk management; remarkably, risk aversion is sufficient for this result and no assumptions on prudence are required.


Guillermo Ordonez, University of Pennsylvania

Debt Crises: For Whom the Bells Tolls

What a country has done in the past, and what other countries are doing in the present can feedback for good or for ill. We develop a simple model that can address hysteresis and contagion in sovereign debt markets. When a country’s fundamentals change, those changes affect information acquisition about that country but also affect the allocation of investment funds worldwide, inducing changes in the dynamics of sovereign spreads in seemingly unrelated countries.


Lukas Schmid, Duke University

Competition, Markups, and Predictable Returns

Imperfect competition is an important channel for time-varying risk premia in asset markets. We build a general equilibrium model with monopolistic competition and endogenous firm entry and exit. Endogenous variation in industry concentration generates countercyclical markups, which amplifies macroeconomic risk. The nonlinear relation between the measure of firms and markups endogenously generates countercyclical macroeconomic volatility. With recursive preferences, the volatility dynamics lead to countercyclical risk premia forecastable with measures of competition. Also, the model produces a U-shaped term structure of equity returns.




Annette Vissing-Jorgensesn, University of California, Berkeley

Stock Returns over the FOMC Cycle ”

We document that since 1994 the US equity premium follows an alternating weekly pattern measured in FOMC cycle time, i.e. in time since the last Federal Open Market Committee meeting. The equity premium is earned entirely in weeks 0, 2, 4 and 6 in FOMC cycle time (with week 0 starting the day before a scheduled FOMC announcement day). We show that this pattern is likely to reflect a risk premium for news (about monetary policy or the macroeconomy) coming from the Federal Reserve: (1) The FOMC calendar is quite irregular and changes across sub-periods over which our finding is robust. (2) Even weeks in FOMC cycle time do not line up with other macro releases. (3) Volatility in the fed funds futures market and the federal funds market (but not to the same extent in other markets) peaks during even weeks in FOMC cycle time. (4) Information processing/decision making within the Fed tends to happen bi-weekly in FOMC cycle time: Before 1994, when changes to the Fed funds target in between meetings were common, they disproportionately took place during
even weeks in FOMC cycle time. In addition, after 2001 Board of Governors discount rate meetings (at which the board aggregates policy requests from regional federal reserve banks and receives staff briefings) tend to take place bi-weekly in FOMC cycle time. As for how the information gets from the Federal Reserve to the market, we rule out the Federal Reserve signaling policy via open market operations post-1994. Furthermore, the high return weeks do not systematically line up with official information releases from the Federal Reserve or with the frequency of speeches by Fed officials. We end with a discussion of quiet policy communications and unintended information flows.


Geoffrey Tate, University of North Carolina – Chapel Hill

Do Credit Analysts Matter? The Effect of Analysts on Ratings, Prices, and Corporate Decisions ”

We find evidence of systematic optimism and pessimism among credit analysts, comparing contemporaneous ratings of the same firm across rating agencies. These biases carry through to debt prices and negatively predict future changes in credit spreads, consistent with mispricing. Moreover, they affect corporate policies: firms covered by more pessimistic analysts issue less debt, use more equity financing, and experience slower revenue growth. We find that MBAs provide higher quality ratings; however, optimism increases and accuracy decreases with tenure covering the firm. Our analysis uncovers a novel mechanism through which debt prices become distorted and demonstrates its effect on corporate decisions.


Lucian Taylor, Wharton, University of Pennsylvania

Intangible Capital and the Investment-q Relation

Including intangible capital in measures of investment and Tobin’s q produces a stronger investment-q relation. Specifically, regressions of investment on q produce higher R2 values and larger slope coefficients, both in firm-level and macroeconomic data. Including intangible capital also produces a stronger investment-cash flow relation. These results hold across a variety of firms and periods, but some results are even stronger where intangible capital is more important. These findings change our assessment of the classic q theory of investment, and they call for the inclusion of intangible capital in proxies for firms’ investment opportunities.


Howard Kung, London Business School

Government Maturity Structure Shocks

This paper examines the impact of government debt maturity restructuring on inflation and the real economy using a New Keynesian model that features a stochastic maturity structure of nominal debt and allows for changes in the monetary/fiscal policy mix. The irrelevance of open market operations changing the duration of government liabilities (holding the market value constant) is violated when the slope of the yield curve is nonzero in a fiscally-led policy regime. When the yield curve is downward-sloping, shortening the maturity structure increases the government discount rate, which generates fiscal inflation and an expansion in output. The opposite results obtain when the yield curve is upward-sloping. Conditional maturity restructuring policies depending on the slope of the yield curve can smooth macroeconomic fluctuations and over substantial welfare benefits. In a liquidity trap, lengthening the maturity structure can be effective in attenuating deflationary pressure and output losses. In short, this paper highlights the importance of bond risk premia, in conjunction with the government debt valuation equation, as a transmission channel for open market operations.


Tyler Muir, Yale

Financial Crises and Risk Premia

I analyze the behavior of risk premia in financial crises, wars, and recessions in an international panel spanning over 140 years and over 14 countries. I document that risk premia increase substantially in financial crises, but not in the other episodes. However, drops in consumption and consumption volatility are fairly similar across financial crises and recessions and are largest during wars, so standard macro asset pricing models will have trouble matching this variation. Comparing crises to “deep” recessions strengthens these findings further. I also find the equity of the financial sector forecasts returns. Taken together, the results suggest that the health of the financial sector is important for understanding why aggregate risk premia vary. I calibrate an intermediary asset pricing model and show it can match the data.


Jonathan Karpoff, University of Washington

The Value of Foreign Bribery to Bribe Paying Firms

We examine foreign bribery and its enforcement using data from enforcement actions initiated under the U.S. Foreign Corrupt Practices Act (FCPA) from 1978 through May 2013.  We estimate that 22.9% of Compustat-listed firms with foreign sales engaged in a program of prosecutable bribery at least once during our sample period, and that the probability a bribe-paying firm will face bribery charges is 6.4%.  Bribes tend to be paid for important contracts, as the average ex ante NPV of a bribe-related contract is 2.6% of the firm’s market capitalization.  The costs for firms that are prosecuted for bribery depend on whether the bribery is comingled with charges of financial fraud.  Firms with comingled fraud charges face large fines, investigation costs, and reputational losses, such that the ex post NPV is negative.  Bribe-paying firms without comingled fraud charges face significant fines and investigation costs, but do not, on average, lose reputation in a way that impedes future operations or profitability.



Liyan Yang, Rotman School of Management, University of Toronto

Good Disclosure, Bad Disclosure

We study the implications of public information in a model where market prices convey information to relevant decision makers and the fluctuation of market prices is driven by multiple factors. Disclosure has a positive direct effect of providing new information and an indirect effect of changing the price informativeness. If disclosure is about a variable of which real decision makers are well informed, then the indirect effect is also positive, so that the direct effect is amplified, leading to a positive overall effect on real efficiency. If disclosure is about a variable that real decision markers care to learn much, then the indirect effect is negative and the direct effect is attenuated. Moreover, in markets which aggregate private information effectively, the negative indirect effect can dominate, so that disclosure can harm real efficiency.


Shmuel Baruch,  The University of Utah

Fleeting Orders

We study a dynamic limit order market with a finite number of strategic liquidity suppliers who post limit orders. Their limit orders are hit by either news (i.e. informed) traders or noise traders. We show that repeatedly playing a mixed strategy equilibrium of a certain static game is a subgame perfect equilibrium with fleeting orders and flickering quotes. Furthermore, regardless of the distributions of the liquidation value and noise trade quantity, we always find a sequence of equilibria in mixed strategies such that the resulting random supply schedule converges in mean square, as the number of liquidity suppliers increases to infinity, to the deterministic competitive supply function.


Barney Hartman-Glaser, University of California, Los Angeles

Dynamic Agency and Real Options

We analyze how dynamic moral hazard affects corporate investment. In our model, the owners of a firm hold a real option to increase capital. They also employ a manager who controls the firm's productivity, but is subject to moral hazard. Although this conflict reduces capital productivity, both over- and under-investment can occur. When moral hazard is severe, the firm invests at a lower threshold in productivity than in the first-best because investment is a substitute for effort. When the growth option is large, the investment threshold is higher than in the first-best. We also discuss how investment affects pay-performance sensitivity.


Bill Wilhelm, University of Virginia

Investment-Banking Relationships: 1933-2007

We study the evolution of investment bank relationships with issuers from 1933–2007. The degree to which issuers conditioned upon prior relationship strength when selecting an investment bank declined steadily after the 1960s. The issuer’s probability of selecting a bank with strong relationships with its competitors also declined after the 1970s. In contrast, issuers have placed an increasing emphasis upon the quantity and the quality of their investment bank’s connections with other banks. We relate the structural changes in bank-client relationships beginning in the 1970s to technological changes that altered the institutional constraints under which security issuance occurs.



Michael Roberts, Wharton School of Business, University of Pennsylvania

"How Does Government Debt Affect Corporate Financial and Investment Policies?"

Co-authored by John R. Graham, Fuqua School of Business, and Mark T. Leary, Olin School of Business

Using a novel dataset of accounting and market information that spans most publicly traded nonfinancial firms over the last century, we find an economically large and robust negative relation between government debt and corporate debt and investment. A one standard deviation increase in treasury debt is associated with a one-third standard deviation reduction in corporate debt issuances, a one-third standard deviation increase in liquid assets, no significant change in corporate equity issuances, and a one-third standard deviation reduction in corporate investment. These relations are more pronounced in larger, less risky firms whose debt is a closer substitute for treasuries. The channel through which this effect operates is financial intermediaries, whose balance sheets reveal a substitution between lending to the federal government and lending to the corporate sector. The relations between government debt and corporate policies, as well as the substitution between government and corporate lending by intermediaries, are stronger after 1970 when foreign demand increased competition for treasury securities. In concert, our results suggest that large, financially healthy corporations act as liquidity providers by supplying relatively safe securities to investors when alternatives are in short supply, and that this financial strategy influences marginal investments.


Mark Leary, Olin Business School, Washington University in St. Louis

Do Investors Value Dividend Smoothing Stocks Differently?

Co-authored with Yelena Larkin (Penn State) and Roni Michaely (Cornell)

It is almost an article of faith that managers have a preference for smooth dividends. Yet, it is not clear if this reflects investors' preferences. In this paper, we study whether investors indeed value dividend smoothing stocks differently by exploring the implications of dividend smoothing for firms' stock prices and cost of capital. Using over 80 years of data, we find no robust relationship between the smoothness of a firm's dividends and the expected return or market value of its stock. Similarly, we find no association between the path of dividend changes and firms' value. The asymmetric reaction to dividend increases and decreases is largely attributable to the first time the firm cuts its dividend. Finally, we find that retail investors are less likely to hold dividend smoothing stocks, while institutional investors, and especially mutual funds, are more likely. This evidence for a smoothing clientele offers a potential reconciliation of our findings with the prevalent use of dividend smoothing.


Robert Novy-Marx, Simon Business School, University of Rochester



Neng Wang, Columbia Business School

"Investment, Liquidity, and Financing under Uncertainty

Co-authored with Patrick Bolton (Columbia) and Jinqiang Yang (Shanghai University of Finance and Economics)


Igor Makarov, London Business School

"Arbitrage Trading with Marking-to-market and Price Impact"

The paper studies trading decisions of money managers whose profit is marked-to-market and who trade in markets with price impact. I show that in their chase after good performance record managers may accumulate excessively large arbitrage positions and therefore, push prices above their fundamental levels. This may result in very large losses for investors.


Harrison Hong, Princeton

Count Models of Social Networks in Finance

Co-authored with Jiangmin Xu (Princeton)



Yuri Tserlukevich, Arizona State University

Idiosyncratic Cash Flows and Systematic Risk


Utpal Bhattacharya, Kelley School of Business, Indiana University

The Dark Side of ETFs and Index Funds


Dean Corbae, Wisconsin School of Business, University of Wisconsin

Capital Requirements in a Quantitative Model of Banking Industry Dynamics


Bryan Kelly, Booth School of Business, University of Chicago

"Firm Volatility in Granular Networks"

10/10/13 (Thu)Matteo Maggiori, Stern School of Business, NYU

Vito Gala, London School of Business

"Measuring Marginal q"


Alexander Gorbenko, London School of Business

"Means of Payment and Timing of Mergers and Acquisitions in a Dynamic Economy"

12/4/13 (Wed)

RM L-114

Peter DeMarzo, Stanford Business School

"Risking Other People's Money: Gambling, Limited Liability, and Optimal Incentives"


Adair Morse, Booth School of Business, University of Chicago

"Lawyers in the Executive Suite: The Value of Gatekeepers as Internal Governance"


1/11/13Michael Gofman, University of Wisconsin-Madison
"Efficiency and Stability of a Financial Architecture with Too Interconnected To Fail Institutions"
3/08/13Konstantin Milbradt, Massachusetts Institute of Technology
3/29/13Vincenzo Quadrini, University of Southern California
4/10/13Kai Li, University of British Columbia
4/12/13Ian Martin, Stanford
4/19/13Charlie Hadlock, Michigan State
4/26/13Kent Daniel, Columbia University
5/3/13Jeff Brown, University of Illinois


9/14/12Avri Ravid, Yeshiva University
"Intellectual Property Contracts: Theory and Evidence from Screenplay Sales"
9/21/12Mike Weisbach, Ohio State
"Financing-Motivated Acquisitions"
10/05/12Hamid Mohtadi, University of Wisconsin
10/12/12Rui Albuquerque, Boston University
"Understanding the Equity-premium and Correlation Puzzles"
10/19/12David Frankel, Iowa State
"Securitization and Banking Competition"
11/16/12Paolo Pasquariello, University of Michigan 
"Financial Market Dislocations"
11/30/12Carola Frydman, Boston University 
"Economic Effects of Runs on Early 'Shadow Banks': Trust Companies and the Impact of the Panic of 1907"



Andrey Malenko, MIT

"Optimal Design of Internal Capital Markets"


Lars Lochstoer, Columbia

"Parameter Learning in General Equilibrium: The Asset Pricing Implications"


Simon Gervais, Duke University

"The Industrial Organization of Money Management"


Annamaria Lusardi, Dartmouth University

"Financial Literacy Around the World"


Radha Gopalan, Washington University

"The Optimal Duration of Executive Compensation: Theory and Evidence"


Stefan Nagel, Stanford University

"Sizing Up Repo"


Ross Levine, Brown University

"Does Entrepreneurship Pay?"


9/9/11Paola Sapienza, Northwestern University
"Time Varying Risk Aversion"

Andrew Hertzberg, Columbia University

"Exponentia Individuals, Hyperbolic Households"


David Backus, NYU

"Sources of Entropy in Representative Agent Models"


Raman Uppal, London Business School

"Asset Prices in General Equilibrium with Transactions Costs and Recursive Utility"


Arthur Korteweg, Stanford University

"Structural Models of Capital Structure: A Framework for Model Evaluation and Testing"


Sergei Davidenko, Rotman

"A Market-Based Study of the Cost of Default"