Research Interests:

My research focuses on how frictions (e.g., asymmetric information, agency problem, and search friction) affect prices, liquidity, and allocation in decentralized markets, with particular interests on the role of intermediaries and market microstructure.

  • Adverse Selection and Liquidity Distortion  Review of Economic Studies, 85.1 (2018): 275-306
    • Market freezes vs fire sales? Two distinct notions of illiquidity arise endogenously, depending on the information structure and market conditions. 
  • Selection versus Talent Effects on Firm Value (jointly w/ Harrison Hong) Journal of Financial Economics, 133.3 (2019): 751-763
    • Quantifying the impact of talent (e.g., CEO or underwriters) on firm value is fundamentally difficult due to the selection.  Using an assignment model, we establish how to use wage and firm output information to disentangle selection vs. talent effects.
  • The Market for Conflicted Advice (jointly w/ Martin Szydlowski) Journal of Finance,  75.2 (2020): 867-903
    • We analyze the quality of financial advice in a competitive equilibrium and establish that while conflicted fee structure leads to distorted information, it is irrelevant for customers' welfare.
Working Papers

  • Endogenous Market Making and Network Formation  (jointly w/ Shengxing Zhang) R&R, Journal of Finance.
    • Abstract:This paper develops a dynamic trading framework that determines jointly agents' counterparties as part of the equilibrium, instead of assuming that agents match exogenously. We show that because of limited information in the decentralized market, the roles of market makers or customers emerge endogenously: certain agents specialize in market making and become highly interconnected, forming the core of the financial network. Having a model with endogenous trading links and transaction prices allows us to show that such a highly asymmetric market structure is constrained efficient, as market makers are compensated correctly for their services. It also allows us to obtain new insights regarding market resilience and intermediation costs. [Online Appendix]
  • Sorting Out the Real Effects of Credit Supply  (jointly w/ Harrison Hong, Matthieu Gomez)
    • Abstract: We document that banks which cut lending the most during the Great Recession were lending to the riskiest firms. Motivated by this evidence, we build a competitive matching model of bank-firm relationship, in which firms with riskier projects borrow from the banks with lower holding costs (e.g. higher ability to securitize). A firm's ability to borrow depends on the entire distribution of bank holding cost. We derive and estimate a simple measure of this distribution using loan rate and credit ratings data. We conclude that its upward shift during the Great Recession, i.e. credit supply effect, explains the decline in aggregate firm loans as opposed to an increase in firm riskiness.
  • Hedging and Pricing Rent Risk with Search Frictions  (jointly w/ Hyun-Soo Choi, Harrison Hong, Jeffrey Kubik)
    • Abstract: The desire of risk-averse households to hedge rent risk is thought to increase home ownership and prices. While evidence for the ownership implication is compelling, support for the price effect is mixed. We show that an important reason is search frictions. Rent risk reduces outside options, leading to less-picky buyers and worse home/buyer matches. This attenuates the rise in the price-to-rent ratio that would otherwise occur without frictions. Consistent with our model, a house remains on the market for fewer days when rent risk is higher. Accounting for frictions significantly increases the effect of rent risk on home prices.
  • A Search Theory of Sectoral Reallocation
    • Abstract: The paper contributes a theoretical framework to analyze how the labor market responds differently to aggregate and sectoral shocks in the presence of search frictions and imperfect mobility. In contrast to the previous literature, which views sectoral shocks as exogenous shocks on matching efficiency, the aggregate impacts of sectoral shocks are the endogenous outcome of the optimal hiring and moving decisions of firm and workers. It shows that, perhaps surprisingly, consistent with recent empirical findings, a pure sectoral shock will not affect the aggregate unemployment. Moreover, during the transition, the aggregate wage increases despite of the decrease in the aggregate productivity.  

In Progress: