Research

Published Papers

Direct Evidence of Bitcoin Wash Trading (with Jiasun Li) - Forthcoming in Management Science, 2024.

SUMMARY: We use the internal data of a major Bitcoin exchange leaked by hackers to detect wash trading – a type of market manipulation in which a single trader clears her own limit orders to “cook” transaction records. Our finding provides direct evidence for the widely-suspected “fake volume” allegation against cryptocurrency exchanges, which has so far only been backed by indirect inferences. Roughly 33% of all transactions are among traders who have engaged in wash trading. Wash trades tend to occur following periods of low transaction fees collected by the exchange, and they significantly increase subsequent transaction fee revenues. Trades that engage in wash trading include previously-exposed exchange insiders. The evidence is consistent with the hypothesis that the exchange commits wash trading itself to inflate apparent trading volume so as to look more attractive to deceived customers and boost fee revenues. We also use our direct evidence to evaluate the indirect inference techniques proposed in the literature. 

Non-Standard Errors (with 342 co-authors) - Forthcoming in the Journal of Finance, 2024.

SUMMARY: In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in sample estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: non-standard errors. To study them, we let 164 teams test six hypotheses on the same sample. We find that non-standard errors are sizeable, on par with standard errors. Their size (i) co-varies only weakly with team merits, reproducibility, or peer rating, (ii) declines significantly after peer-feedback, and (iii) is underestimated by participants.

Economic sanctions and spread of infectious diseases (with Mehdi Aloosh) Forthcoming at Health Policy, 2023.

Economic sanctions can induce economic crises and compromise the determinants of health. In the literature, economic crises have been found to increase the risk of infectious disease outbreaks. Presumably, sanctions can increase the risk of infectious disease spreads, indirectly. However, non-economic factors can fuel the adverse impact of sanctions, including political consequences of sanctions and civil war. We performed a systematic literature review of articles in Embase, MEDLINE, Scopus, Web of Science, Cochrane Library, and the grey literature to assess empirically the impact of economic sanctions on the spread of infectious diseases within and beyond the borders of sanctioned countries. Our review did not identify any study meeting our inclusion criteria. Most of the studies did not control for major socio-political events, particularly armed conflicts in the sanctioned countries. This discovery underscores a notable gap in the examination of the impact of economic sanctions on the propagation of infectious diseases, presenting a threat to global health. Using the social-ecological model, we hypothesize how the economic crisis resulting from economic sanctions affects determinants of health, increases the risk of the spread of infectious diseases and hinders the response capacity of health systems. 

The Tail Wagging the Dog: How Do Meme Stocks Affect Market Efficiency? (with Hyung-Eun Choi and Samuel Ouzan) - Published in the International Review of Economics and Finance, 2023.

SUMMARY: During the GameStop frenzy, Robinhood Markets Inc. made an unprecedented move by pausing the purchase of meme stocks, which represent a small segment of the market, from January 28th to February 5th, 2021. To evaluate the impact of this ban on market efficiency, we created two meme stock indices based on the lists of restricted stocks and conducted robust tests utilizing daily changes in these indices and the S&P 500 index. Our analysis suggests that meme stock trading does not have a negative impact on market efficiency. Furthermore, upon analyzing hourly data, we identified some puzzling correlations during the trading ban period. Specifically, we noticed that the illiquidity and volatility of both the meme stock market and S&P 500 increased, which raises concerns about a wider, unintended impact of the ban.

Bubbles across Meme Stocks and Cryptocurrencies (with Samuel Ouzan and Jawad Syed Shahzad) - Published in Finance Research Letters, 2022.

SUMMARY: We examines the price explosiveness of stocks whose purchase Robinhood restricted during the GameStop episode. We find that those “meme stocks” comprise multiple periods of explosiveness, indicating that they are unlikely to be an epiphenomenon. We also document evidence of price co-explosivity among meme stocks themselves and cryptocurrencies and meme stocks. Given the historical low correlation between the stock market and cryptocurrencies, our results highlight the impact of social media and emerging trading applications on interactions among equity and cryptocurrency markets, and their potentially destabilizing effects on both.

Currency Factors (with Geert Bekaert) - Published in Management Science, 2021.

SUMMARY: We examine the ability of existing and new factor models to explain the comovements of G10-currency changes, measured using “currency baskets.” A clustering technique reveals a clear two-block structure in currency comovements with the first block containing mostly the dollar currencies, and the other the European currencies. A factor model incorporating this “clustering” factor and two additional factors, a commodity currency factor and a “world” factor based on trading volumes, fits currency basket correlations much better than extant factors, such as value and carry, do. In particular, it explains on average about 60% of currency variation and generates a root mean squared error relative to sample correlations of only 0.11. The model also fits comovements in emerging market currencies well. Economically, the correlations between currency baskets underlying the factor structure are inversely related to the physical distances between countries.

The Psychology of Cryptocurrency Prices (with Samuel Ouzan) - Published in Finance Research Letters, 2020.

SUMMARY: We analyze the dynamic of cryptocurrencies’ prices through the lens of behavioral economics. We provide strong evidence that investors in this market suffer from a nominal price illusion and exhibit significant small price bias. We find that low-priced cryptocurrencies are much more volatile and positively skewed than their high-priced counterparts.

Economic sanctions threaten population health: the case of Iran (with Mehdi Aloosh and Alborz Salavati) - Published in Public Health, 2019.

SUMMARY: We study the negative consequences of international economic sanctions on population health in Iran and pathways via which the sanctions affect health. In fact, despite the exemption of health necessities and humanitarian goods from these sanctions, health as a fundamental human right, among others, has been compromised and most probably will be compromised by the new wave of sanctions. Moreover, the adverse health impacts will be greater among vulnerable populations, including those on low-income, the chronically ill, children, women, and the elderly.

Lift sanctions now to save public health (with Mehdi Aloosh) - Published in Nature, 2015.

SUMMARY: Health care is a fundamental human right. By driving up prices and limiting the availability of medicines, sanctions force people and clinics to use poor-quality, black-market medications, leading to the death, disability, and mistreatment of many in the population. This is a violation of the basic human right. 

Iran: the health cost of a political order (with Mehdi Aloosh) - Published in The Lancet, 2014.

SUMMARY: A birth encouragement policy has important sociomedical implications and needs careful planning. We decide the adverse health consequences of a U-turn from a successful birth control policy to a birth encouragement policy that bans permanent sterilization for the general population and punishes those who prepare or encourage contraception in Iran.

Working Papers

On the Dollar Factor in Exchange Rates (with Geert Bekaert) NEW PAPER

SUMMARY: According to Verdelhan (2018), sorting countries by their dollar currency betas creates a monotonic cross-section with a highly significant spread. The slope factor, which is long in high beta currencies and short in low beta currencies, explains this cross section and is also an important determinant of monthly global exchange rate movements. We find that the cross-section of dollar beta returns is fragile and only holds for a few specifications among many reasonable alternatives. Furthermore, both the cross-section and the factor explaining it only work when returns are conditioned on the average forward discount of developed currencies relative to the dollar. However, only the unconditional slope factor explains a large fraction of bilateral currency movements relative to the dollar, but we show this is mostly because of the presence of pegged and managed floating currencies in the currency sample. Moreover, this factor is not particularly powerful in explaining global currency changes.

The Price of a Digital Currency

SUMMARY: This paper introduces a pricing relation for digital currencies as the globally-traded assets in frictionless markets. Using the pricing relation, the paper finds that Bitcoin, unlike the other globally traded assets such as commodities and currencies, is not priced globally. It also documents Bitcoin price discrepancies for various pairs of denominated currencies namely the U.S. dollar, euro, British pound, and Canadian dollar. The price discrepancies reach a peak at 27%, which is almost three times more than the maximum Bitcoin price disparity in the US dollar documented in Yermack (2014). Finally, the paper studies the theoretical price and volatility of cryptocurrencies with zero fundamental values and finds that they have much lower price volatility. And therefore it is much easier to regulate, use, and hold them.

Global Variance Risk Premium and Forex Returns Predictability

SUMMARY: In a long-run risk model with stochastic volatility and frictionless markets, I express expected forex returns as a function of consumption growth variances and stock variance risk premiums (VRPs)—the difference between the risk-neutral and statistical expectations of market return variation. This provides a motivation for using the forward-looking information available in stock market volatility indices to predict forex returns. Empirically, I find that stock VRPs predict forex returns at a one-month horizon, both in-sample and out-of-sample. Moreover, compared to two major currency carry predictors, global VRP has more predictive power for currency carry trade returns, bilateral forex returns, and excess equity return differentials.

Optimizing Currency Risk and Reward in Global Portfolios (with Geert Bekaert)

SUMMARY: We provide a new perspective on the optimal currency hedging problem. We consider hedge ratios that maximize Sharpe ratios out-of-sample.