Networks, Asset Pricing, and Financial Intermediation.
I develop a model for studying the role that uncertainty about the susceptibility of a financial network to contagion plays in the behavior of its member institutions and the design of preemptive interventions. As uncertainty affects the perception of contagion risk, it can reshape market equilibrium inefficiencies, altering the scope of welfare-improving interventions. The socially optimal level of uncertainty depends on a delicate balance between the information technologies available to policymakers and structural features of the network.
Changes in the propagation of idiosyncratic shocks along firm networks are important to understanding variations in asset returns. When calibrated to match key features of supplier-customer networks in the United States, an equilibrium model in which investors have recursive preferences and firms are interlinked via enduring relationships generates long-run consumption risks. Additionally, the model matches cross-sectional patterns of portfolio returns sorted by network centrality, a feature unaccounted for by standard asset pricing models.
Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications [PDF] [Journal of Monetary Economics, Volume 118, March 2021, pages 87-98] (joint with Oksana Leukhina and Nicolás Figueroa)
Our goal is to elucidate the interaction of banks’ screening effort and strategic information production in loan-backed asset markets using a general equilibrium framework. Asset quality is unobserved by investors, but banks may purchase error-prone ratings. The premium paid on highly rated assets emerges as the main determinant of banks’ screening effort. The fact that rating strategies reflect banks’ private information about asset quality helps keep this premium high. Conventional regulatory policies interfere with this decision margin, thereby reducing signaling value of high ratings and exacerbating the credit misallocation problem. We propose a tax/subsidy scheme that induces efficiency.
Using supervisory transaction-level data, this note sheds light on the dynamics of the overnight segment of the U.S. triparty repo market by documenting key features of the behavior of its participants and its intraday dynamics.
Third Conference on the Interconnectedness of Financial Systems March 28 and 29, 2024.
Second Conference on the Interconnectedness of Financial Systems December 2 and 3, 2021.
Conference on the Interconnectedness of Financial Systems March 7 and 8, 2019.