Working Papers

"The Risk of Risk-Sharing: Diversification and Boom-Bust Cycles" [Draft]

I model a shock whereby financial intermediaries can better diversify borrowers’ idiosyncratic risks. This improvement generates a fragile sectoral boom that can end in an economy-wide bust through excessive financier leverage, consistent with several past cycles including (quantitatively) the 2000s US housing cycle.

"Entry and Slow-Moving Capital: Using asset markets to infer the costs of risk concentration" [Draft] (R&R at Journal of Financial Economics)

Asset prices encode costs of risk concentration, through the friction in capital mobility during crises. In our models, such frictions must be enormous to match risk premia levels and variability. Among the possibilities considered, only extrapolative expectations can overturn this result.

"Financial Frictions and Aggregate Fluctuations" [Draft]

Aggregate fluctuations emerge out of idiosyncratic shocks if and only if there are financial frictions. By modeling a weak (network-like) dependence structure across economic agents, this failure of the law of large numbers holds generically and does not require any assumptions about fat-tailed size distributions.

"Comparative Valuation Dynamics in Models with Financing Restrictions" with Lars Hansen and Fabrice Tourre [Draft coming soon] [Slides] [Model Comparisons Toolbox] [Numerical Method Draft also coming soon]

This paper develops a theoretical framework to nest many recent macroeconomic models with financial frictions. We study the macroeconomic and asset pricing properties of this class of models, identify common features, highlight areas where these models depart from each other, and offer new insights.

"Commonality in Credit Spread Changes: Dealer Inventory and Intermediary Distress" with Zhiguo He and Zhaogang Song [Draft]

Two intermediary-based factors explain about 50% of the puzzling common variation of credit spread changes beyond canonical structural factors, consistent with a simple model, in which intermediaries facing margin constraints absorb supply of assets from customers.

Works in Progress

"Market Power as Skin-in-the-Game" with Jung Sakong

We show theoretically that, when households have mistaken beliefs or less information, intermediary market power can limit over-investment, improve resource allocation, and reduce asset price volatility. We devise a series of empirical tests, in both finance and non-finance arenas.