Published and Accepted

11.)    "When It Rains It Pours: Cascading Uncertainty Shocks."  With Anthony M. Diercks and Andrea Tamoni.  Journal of Political Economy, Volume 132, Number 2, February 2024, Pages 694-720.

The effects of uncertainty shocks are superadditive.  Based on local projections, we find the combination of nearby positive shocks can be multiple times more powerful than the sum of their standalone effects.  In a standard New-Keynesian DSGE model, uncertainty shocks are proven to be superadditive only when the model is solved under fourth (or higher) order perturbation. The fourth order solution unlocks the fourth derivative of marginal utility, “edginess”, which is key to generating stronger reactions to multiple risks and superadditivity. Intuitively, an agent already bearing one risk is less willing to bear another in the presence of edginess.

10.)   "Gone With the Vol: A Decline in Asset Return Predictability During the Great Moderation."  With Francisco Palomino and Charles Qian.  Management Science, Volume 69, Issue 5, May 2023, Pages 2547-3155.

We document a significant shift in the comovement of asset returns and macroeconomic volatility during the Great Moderation. Strong U.S. stock and bond return predictability from several macroeconomic volatility series before 1982 was followed by a significant predictability decline during the Great Moderation (1982-2008). These findings are robust to alternative empirical specifications and out-of-sample tests. In a calibrated time-varying-volatility equilibrium model, the predictability decline is consistent with changes in monetary policy and shock dynamics. A stronger policy response to inflation and lower cost-push shock variance reduce the sensitivity of macroeconomic variables and asset returns to a persistent volatility factor, explaining the lower predictability. The results contribute to examine macroeconomic volatility as a driver of expected asset returns, and identify sources of the Great Moderation using asset price dynamics.

9.)    "The Real Response to Uncertainty Shocks: the Risk Premium Channel."  With Lorenzo Bretscher and Andrea Tamoni.  Management Science, Volume 69, Issue 1, January 2023, Pages 119-140.

Uncertainty shocks are also risk premium shocks.  With countercyclical risk aversion (RA), a positive shock to uncertainty increases risk and elevates RA as consumption growth falls.  The combination of high RA and high uncertainty produces significant equity risk premia in bad times, which in turn exacerbate the decline of macroeconomic aggregates and equity prices.  Moreover, in the cross-section of equity returns, investors demand a risk premium for stocks that perform poorly in times of high uncertainty and elevated risk aversion.  In a model with endogenously time-varying RA, uncertainty shocks lead to large falls in investment and equity prices that closely match state-dependent data responses.

8.)    "COVID-19 and the Cross-Section of Equity Returns: Impact and Transmission."  With Lorenzo Bretscher, Peter Simasek and Andrea Tamoni.  Review of Asset Pricing Studies, Volume 10, Issue 4, December 2020, Pages 705–741.

Using the first reported case of COVID-19 in a given US county as the event day, firms headquartered in an affected county experience an average 27 bps lower return in the 10-day post-event.  This negative effect nearly doubles in magnitude for firms in counties with a higher infection rate (-50 bps).  We test a number of transmission channels.  Firms belonging to labor intensive industries and residing in counties with large mobility decline have worse stock performance.  Firms sensitive to COVID-19 induced uncertainty also exhibit more negative returns.  Finally, firms associated with downward earnings forecast revisions are more impacted.

7.)    "Does History Repeat Itself? Business Cycle and Industry Returns."  With Sudheer Chava and Linghang Zeng.  Journal of Monetary Economics, Volume 116, December 2020, Pages 201-218.

We document that industries with higher historical regime Sharpe Ratios have higher expected returns conditional on the business cycle.  A long-short sector rotation strategy generates annualized alpha of 11.91% (14.02%) in Fama-French three-factor (five-factor) model from 1985-2014. This alpha does not stem from industry momentum or related anomalies and is less likely to be driven by risk-based explanations.  Firms in long portfolios have stronger fundamentals, more upward revisions in analyst forecasts and more positive forecast errors.  Our results suggest that investors do not fully incorporate business cycle variation in cash flow growth and highlight the importance of business cycle on the cross-section of industry returns.

6.)    "Fiscal Policy Driven Bond Risk Premia."  With Lorenzo Bretscher and Andrea Tamoni.  Journal of Financial Economics, Volume 138, Issue 1, October 2020, Pages 53-73.

Fiscal policy matters for bond risk premia. Empirically, government spending level and volatility predict excess bond returns. Shocks to government spending level and volatility are also priced in the cross-section of bond and stock portfolios. Theoretically, level shocks raise inflation when marginal utility is high, thus generating positive inflation risk premia (term structure level effect). Volatility shocks steepen the yield curve (slope effect), producing positive term premia. These effects are consistent with evidence from a structural VAR. Further, asset pricing tests using model simulated data corroborate our empirical findings. Lastly, fiscal shocks are amplified at the zero lower bound.

5.)    "Financial Constraints, Monetary Policy Shocks, and the Cross-Section of Equity Returns." With Sudheer Chava.  Review of Financial Studies, Volume 33, Issue 9, September 2020, Pages 4367–4402.

We analyze the impact of monetary policy changes in the cross-section of equity returns. Using both event study and time series tests, we find that financially constrained firms earn a significantly lower return following unanticipated fed funds target rate increases as compared to financially unconstrained firms. Decomposing the stock returns into cash flow news and discount rate news, we document that constrained firms earn lower average returns than unconstrained firms because positive monetary policy shocks significantly decrease expected cash flows of constrained firms more. On the other hand, discount rate news of constrained and unconstrained firms do not differ significantly around the unanticipated monetary policy changes. Our results highlight how monetary policy shocks have a disproportionate impact on financially constrained firms.

4.)    "The Economic Impact of Right-to-Work Laws: Evidence from Collective Bargaining Agreements and Corporate Policies"  With Sudheer Chava and Andras Danis.  Journal of Financial Economics, Volume 137, Issue 2, August 2020, Pages 451-469.

We analyze the economic and financial impact of right-to-work (RTW) laws in the US. Using data from collective bargaining agreements, we show that there is a decrease in wages for unionized workers after RTW laws. Firms increase investment and employment but reduce financial leverage. Labor-intensive firms experience higher profits and labor-to-asset ratios. Dividends and executive compensation also increase post-RTW. Our results are consistent with a canonical theory of the firm augmented with an exogenous bargaining power of labor and suggest that RTW laws impact corporate policies by decreasing that bargaining power.

3.)    "Implementing Stochastic Volatility in DSGE Models: A Comment."  With Lorenzo Bretscher and Andrea Tamoni.  Macroeconomic Dynamics, Volume 24, Issue 4, June 2020, Pages 935-950.

We highlight a state variable misspecification with one accepted method to implement stochastic volatility (SV) in DSGE models when transforming the nonlinear state-innovation dynamics to its linear representation. Although the technique is more efficient numerically, we show that it is not exact but only serves as an approximation when the magnitude of SV is small. Not accounting for this approximation error may induce substantial spurious volatility in macroeconomic series, which could lead to incorrect inference about the performance of the model. We also show that, by simply lagging and expanding the state vector, one can obtain the correct state-space specification. Finally, we validate our augmented implementation approach against an established alternative through numerical simulation.

2.) "Real and Nominal Equilibrium Yield Curves" With Erica X.N. Li and Francisco Palomino.  Management Science, Volume 67, Issue 2, May 2020, Pages 1138-1158.

This paper quantitatively explores the role of external habits, nominal rigidities, and monetary policy for real and nominal bond yields in an asset-pricing endogenous growth model. The calibration captures the reported average positive slopes of U.S. real and nominal yield curves with sizable positive real and nominal bond risk premia. Habits are critical to generate positive real premia by altering the comovement of real rates and productivity shocks. Nominal rigidities generate monetary policy effects on real bonds. Stronger policy rule inflation responses or weaker output responses increase real term premia and reduce inflation risk premia. Relative to standard models, the paper provides an alternative interpretation of real and nominal bond risks.