Publications

• Adverse Selection and Liquidity Distortion  Review of Economic Studies, 85.1 (2018)

• Selection versus Talent Effects on Firm Value (jointly w/ Harrison Hong) Journal of Financial Economics, 133.3 (2019)

• The Market for Conflicted Advice (jointly w/ Martin Szydlowski) Journal of Finance,  75.2 (2020)

• Sorting Out the Effects of Credit Supply  (jointly w/ Harrison Hong, Matthieu Gomez)  Journal of Financial Economics, 150.3 (2023) 

Working Papers

• Endogenous Market Making and Network Formation  (jointly w/ Shengxing Zhang) R&R, Journal of Economic Theory

  • Abstract: We propose a new framework of the financial over-the-counter market that jointly determines traders' interconnectedness with asset prices and allocations. Traders are homogeneous and face uncertainty about their trading needs ex ante. We establish that traders adopt asymmetric trading strategies to target their future counterparties more efficiently. In markets where holding unbalanced inventory is costly, a multilayer hierarchical market structure emerges, where traders at a higher tier are committed to providing immediacy to traders at lower tiers and become more central and have higher expected volumes. Such predictions are consistent with the empirical evidence in the interdealer market for dealer centrality, intermediation markups, and the distribution of intermediation chain lengths.

  • Selected conferences: the 2015 NBER/NSF/CEME Mathematical Economics Conference, the 2016 Minnesota Workshop in Macroeconomic Theory, FTG Meeting 2015, SED 2015, World Congress 2015

• Financial Market Structure and Risk Concentration (jointly with Shengxing Zhang) 

  • Abstract: We present a framework that jointly determines trading networks and risk allocation among banks. Banks are ex-ante homogeneous and risk-averse, but their marginal costs of bearing risks may be diminishing. The optimal trading network is determined by the tradeoff between risk sharing vs. concentration, which in turn determines the level of aggregate risk exposures, amount of intermediate trades, dispersion of transaction prices, and distribution of risk exposure across financial institutions. We show that a continuous change in fundamentals or regulations may lead to a structural change in the market structure, causing discontinuous changes in these observables.

  • Selected conferences:  2022 SITE - Dynamic Games, Contracts, and Market, AFA 2022, SED 2022, SAET 2022, 2023 North American Summer Meetings of the Econometric Society  

• The Fundamental Role of Uninsured Depositors in the Regional Banking Crisis (jointly w/ Ing-Haw Cheng, Harrison Hong)

  • Abstract: We re-examine the role of uninsured depositors through the lens of fundamentals and the idea that uninsured depositors are valuable clients who demand loans. We provide new stylized facts showing that banks with more uninsured deposits --- who experienced greater equity value declines during the crisis of 2023 --- had greater stock price risk, profitability, market valuations, and executive pay before the crisis. To explain these facts, we develop a model where banks better at risk-taking attract large uninsured depositors who have loan demand. Rising interest rates and decreased loan demand reduce lending-relationship values, leading to outflows from riskier banks. 

  • Selected conferences: Wharton Conference on Liquidity and Financial Fragility 2023, NBER Corporate Finance Fall Meeting 2023

• Green Multistakeholder Theory   (jointly w/ Harrison Hong)

  • Abstract: Green stakeholders, including shareholders, banks, workers and customers, are willing to pay for their firms to abate carbon emissions.  To understand their impact, we present a model of costly abatement that depends on sorting between firms and multiple types of stakeholders along two dimensions --- productivity and green preferences.   We develop a method to characterize the competitive multilateral-matching equilibrium, featuring compensating differentials and rents to skilled brown stakeholders. Impact is limited by green stakeholders concentrating in smaller firms due to economies of abatement and larger firms outbidding for brown stakeholders to avoid abatement. Abatement subsidies reduce costs of matching with green stakeholders, enhancing their impact.

  • Selected conferences: AFA 2024

• Non-Pecuniary Preferences of Talented Employees (jointly w/ Ioannis Branikas, Harrison Hong, Nan Li)

  • Abstract:  Surveys indicate that talented employees trade off wages to achieve work-life balance or sustainability goals and companies use such workplace amenities to compete for talent. There is also a strong correlation in US data between wages and these amenities due to firm size. To reconcile these findings, we model a labor market where companies compete for talent by offering wages and costly amenities.  More talented sort to bigger firms and receive higher wages and amenities, with the mix  determined by their preference. A larger amenities weight yields a more compressed wage (versus firm-profit) distribution. Using this model-implied restriction, we estimate a statistically significant 30% weight, hence rejecting a purely pecuniary model.

  • Selected conferences: AFA 2021

• Buy versus Rent Heuristic (jointly w/ Hyun-Soo Choi, Harrison Hong, Jeffrey Kubik, Mark Rempel)

  • Abstract: A widely-used heuristic in real estate is that households are better off searching for a home in housing markets with low price-to-rent ratios. Through the lens of a model of search for differentiated homes and time-varying rents, we assess the implications of this heuristic for the expected surplus of US home buyers. We propose model-implied restrictions, based on rents, transactions prices and days on the market, to estimate our model. Within cities, lower price-to-rent is significantly associated with higher expected buyer surplus only for large dense urban cities. Across similarly dense cities, variation in price-to-rent ratios are unrelated to expected buyer surplus as it reflects better average match quality rather than bargaining power between buyers and sellers.  

• 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.