Publications:
Journal of Finance, forthcoming.
Journal of Financial Economics, February 2016, Vol. 119 (2), pp. 249–283.
Working papers:
Risk Reallocation in OTC Derivatives Networks (paper available upon request)
Over-the-counter (OTC) derivatives markets are the key venue for quickly reallocating exposures to key risk factors such as interest rates, exchange rates, and credit amongst market participants. These markets are very large, and are characterized by a complex trading network with disperse prices. In this paper, we ask how the structure of the OTC derivatives trading network, the preferences and technologies of the participants, and the distribution of endowed exposures to the underlying risk factor, jointly determine the observed patterns of trade, post-trade exposures, and prices. Finally, we estimate the key parameters of our model, and we use the model to study comparative statics related to risk management and regulation.
We study information acquisition from peers when agents’ actions balance adaptation and coordination motives. Agents acquire information personally and may obtain additional information by connecting to other agents. Although equally informative regarding adaptation, the source’s relative position in the information structure is relevant to form expectations about actions of other players. In our setting, information sources are not perfectly substitutable, and the information of an “opinion maker”—an agent whose information is more public—is more informative of how others act. We show that, when players choose their connections, (i) it is always preferable to connect to opinion makers, and (ii) opinion makers have less incentives to form links. These two results characterize the endogenous shape of the network: Any strict equilibrium of the network formation game generates a hierarchical information structure. Furthermore, if the marginal cost of acquiring information is increasing, the information structure is “core-periphery”. We take advantage of the simplicity of the equilibrium information structure to provide two applications. First, we use data on earnings-per-share forecasts to provide an example of how much of the aggregate volatility of forecast can the information structure account for. Second, we focus on the origins of leadership: how individual characteristics influence the role of the agent in the information structure.
We introduce a model of the economy as a social network. Two agents are linked to the extent that they transact with each other. This generates well-defined topological notions of location, neighborhood and closeness. We investigate the implications of our model for monetary economics. When a central bank increases the money supply, it must inject the money \emph{somewhere} in the economy. The agent closest to the location where money is injected is better off, and the one furthest is worse off. Symmetrically, any decrease in the money supply redistributes purchasing power in the other direction. This redistribution channel is independent from other previously studied channels. Our model’s theoretical predictions are supported by the data.
This paper investigates the implications of affirmative action in college admissions for welfare, aggregate output, educational investment decisions and intergenerational persistence of earnings. We construct an overlapping-generations model in which parents choose how much to invest in their child’s education, thereby increasing both human capital and likelihood of college admission. Motivated by a recent policy implemented in Brazil, we calibrate the model to quantify affirmative action long-run effects. We find that affirmative action targeting the bottom quintile of the income distribution is a powerful policy to reduce intergenerational persistence of earnings and improve welfare and aggregate output.

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