Networks, Asset Pricing, Systemic Risk, and Financial Intermediation.
"Firm Networks and Asset Returns" [PDF, Feb 1 2018] [Revise and Resubmit, The Review of Financial Studies]
This paper argues that 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.
WORK IN PROGRESS
"On Regulating Complex Financial Systems" [Draft coming soon]
This paper argues that the complexity of modern financial systems can greatly reduce the ability of policymakers to improve financial stability. Policymakers may be incapable of preventing large cascades of distress in systems with highly asymmetric connectivity structures without gathering granular information. However, acquiring granular information does not necessarily improve policy interventions. Importantly, in many cases, policymakers can improve investors' welfare by imposing restrictions on a set of institutions. The size of such a set is determined by the interplay between aggregate features of the system's connectivity structure, the costs of restricting institutions, and investors' beliefs and their attitude toward ambiguity.
"A Model for Financial Stability Monitoring" with Nathan Foley-Fisher
"A Model for Robust Regulation of Financial Networks" with Julio Deride
"Basket Securities in Segmented Markets " [PDF, Dec 22 2017]
Basket securities are securities that bundle different assets and whose payoffs depend on those of the underlying pool of assets, such as index funds and exchange-traded funds (ETFs). I study the design and welfare implications of basket securities issued in markets with limited investor participation in which profit-maximizing intermediaries are involved in financial innovation. I show that when only one intermediary exists, the equilibrium is not constrained efficient. Increasing competition among intermediaries increases the variety of baskets issued but does not necessarily improve investors’ welfare.