Working Papers

Working Papers:

The Deposit Business at Large vs. Small Banks with Adrien d'Avernas, Can Huang, Richard Stanton, and Nancy Wallace.  Slides

The deposit business differs at large versus small banks.  We provide a parsimonious model and extensive empirical evidence supporting the idea that much of the variation in deposit-pricing  behavior between large and small banks reflects differences in ``preferences and technologies.''  Large banks offer superior liquidity services but lower deposit rates, and locate where customers value their services.  In addition to receiving a lower level of deposit rates on average, customers of large banks exhibit lower demand elasticities with respect to deposit rate spreads.  As a result, despite the fact that the locations of large-bank branches have demographics typically associated with greater financial sophistication, large-bank customers earn lower average deposit rates.  Our explanation for deposit pricing behavior challenges the idea that deposit pricing is mainly driven by pricing power derived from the large observed degree of concentration in the banking industry.

Generative AI and Firm Values with Gregor Schubert and Ben Miao Zhang.  NBER Slides,  AFA AI Panel Slides

AFA Panel AI and the future of Finance (at minute 23)

Media Coverage:  WSJ, Bloomberg, Barrons Op Ed, Barrons Article, FT Alphaville, Maginal Revolution, Vox EU, Forbes

What are the effects of recent advances in Generative AI on the value of firms? Our study offers a quantitative answer to this question for U.S. publicly traded companies based on the exposures of their workforce to Generative AI. Our novel firm-level measure of workforce exposure to Generative AI is validated by data from earnings calls, and has intuitive relationships with firm and industry-level characteristics. Using Artificial Minus Human portfolios that are long firms with higher exposures and short firms with lower exposures, we show that higher-exposure firms earned excess returns that are 0.4% higher on a daily basis than returns of firms with lower exposures following the release of ChatGPT. Although this release was generally received by investors as good news for more exposed firms, there is wide variation across and within industries, consistent with the substantive disruptive potential of Generative AI technologies.

Interdealer Price Dispersion with Bernard Herskovic and Shuo Liu.

Intermediation capacity varies across dealers and, as a result, misallocation of credit risk reduces the risk-bearing capacity of the dealer sector and increases effective market-level risk aversion. When the efficient reallocation of credit risk within the dealer sector is impaired, interdealer price dispersion increases. Empirically, interdealer price dispersion is a strong determinant of yield spread changes. When interdealer price dispersion is high, bond prices are low. Interdealer price dispersion explains a substantial portion of bond yield spread changes, the cross-section of bond returns, and the basis between yield spread changes and changes in fair-value spreads. We conclude that frictions within the dealer sector reduce the risk-bearing capacity of intermediaries and are thus crucial for intermediary bond pricing. 

Equity Pay Beyond the C-Suite with Antonio Falato, Dongryeol Lee, and Mindy Zhang.

Equity pay has become increasingly common over the last several decades but the differences in the level of equity pay across firms are very large.  This study documents the inequality in equity pay across firms and describes the drivers of firm-level differences in equity pay policies.  We show that firm-level equity pay is very persistent, and a large fraction of the differences across firms in equity pay comes from differences in initial values.  Some of the differences in initial values can be attributed to differences across firms' financial constraints and to substantial peer effects.  We show that high equity pay firms manage equity pay most actively, in particular counteracting the effects of stock price gains and losses.  High-equity pay firms tend to be younger, and to experience subsequently higher employment growth.  We also compare equity pay beyond the C-Suite to CEO equity pay and show that CEOs' equity pay is much less persistent, and is actually lower at younger firms and firms that experience higher employment growth.  We argue that equity pay is both a compensation and a capital structure decision, and draw out these parallels.

Intangible Capital, Non-Rivalry, and Growth with Nico Crouzet, Janice Eberly, and Dimitris Papanikolaou (slides).

We provide an answer to why growth may slow even in the face of technological improvements. Our focus is on the role of intangible assets. Intangible assets are distinct from physical capital in that they are comprised by information that requires a storage medium. A reduction in replication costs for intangible assets enables them to be less rivalrous in use, stimulating growth. However, we show how limits to excludability create a countervailing force. Depending on the strength of property-rights institutions, growth may slow even as technology lowers replication costs for intangibles, enhances their non-rivalry, and creates economies of scale and scope. 

A Model of Intangible Capital  with Nico Crouzet, Janice Eberly, and Dimitris Papanikolaou.

Intangible assets are a large and growing part of firms’ capital stocks. Intangibles are accumulated via investment – foregoing consumption today for output in the future – though they lack a physical presence. But rather than stopping with this ”lack”, we instead focus on the actual properties of intangibles that follow – in particular, non-rivalry and the need for storage. We model these properties in a simple way to demonstrate the economic implications, such as scalability and appropriability, that are often associated with intangibles. These implications coincide with a number of important issues and trends in macroeconomics and finance, including measurement of productivity, inequality, investment and valuation, rents and market power, and financing.

Older Working Papers:

"The Market for OTC Derivatives" (with Andrew Atkeson and Pierre-Olivier Weill) 

Develops the stylized facts characterizing CDS markets, along with the positive implications of a model of OTC derivatives markets.  See also our policy commentary on Voxeu.org.

“Financing Shortfalls and the Value of Aggregate Liquidity.” (with Adriano Rampini.)  

This paper studies the level and dynamics of the value of aggregate liquidity induced by firms’ financing shortfalls.

“Colonies.” (with  Matthias Doepke.)  

Why do institutions that inhibit growth persist?  We answer this question in a political economy model of the choice over property rights institutions.  Incumbents with property-rights protection trade off efficiency and exploitation in their decisions to award or limit the property rights of others.