Bin Wei

Financial Economist and Associate Policy Adviser
the Federal Reserve Bank of Atlanta

Email: bin.wei@atl.frb.org



Selected Working Papers




We generalize the long-run risks (LRR) model in Bansal and Yaron (2004) by incorporating the recursive smooth ambiguity aversion preferences and time-varying ambiguity. The generalized LRR model matches reasonably well key asset pricing moments, particularly those of the variance premium, with risk aversion under 5.  



The Two-Pillar Policy for the RMB (with Urban Jermann and Vivian Zhanwei Yue) (NEW)
 
We document stylized facts about China's recent exchange rate policy for its currency, the Renminbi (RMB). Our empirical findings suggest that a "two-pillar policy" is in place, aiming to balance RMB index "stability" and exchange rate "flexibility". We then develop a tractable no-arbitrage model of the RMB under the two-pillar policy. Using derivatives data on the RMB and the US dollar index, we estimate the model to assess financial markets' views about the fundamental exchange rate and sustainability of the policy. 




We develop an inventory model of bidding and trading through a dealer network in over-the-counter markets. In sharp contrast with the existing inventory literature, we find that due to centrality the central dealer may still be in the best position to absorb the customer's sell (buy) order even though he has the largest (smallest) inventory across all dealers.



Financial Intermediation Chains in an OTC Market (with Ji Shen and Hongjun Yan)

Modern financial markets have long intermediation chains (many layers of intermediaries). This paper offers a theory and its empirical assessment.



Liquidity Backstop and Dynamic Debt Runs (with Vivian Zhanwei Yue)

We provide a micro-foundation for the role of liquidity backstops in mitigating runs. Using several run episodes in the short-term municipal bond markets during the financial crisis, we identify the value of liquidity backstops around 14.5 basis points per annum.




We find an innovative way to incorporate inflation derivatives data into a no-arbitrage affine term structure model of nominal and real interest rates. Inflation options are very informative and help the model to better forecast inflation than the survey-based inflation forecasts.

  

 

Publications & Forthcoming

(7) Sovereign Debt - Theory (with Vivian Zhanwei Yue), forthcoming, Oxford Research Encyclopedia of Economics and Finance 

We review recent theoretical and quantitative studies in the sovereign debt literature. 

(6) Ambiguity Aversion and the Variance Premium (with Jianjun Miao and Hao Zhou), Quarterly Journal of Finance , June 2019, Volume 9, Issue 2, Pages 1-36. (Lead Article)

This paper offers an ambiguity-based interpretation of the variance premium. We find that about 97 percent of the mean variance premium can be attributed to ambiguity aversion.

(5) Optimal Long-Term Contracting with Learning (with Zhiguo He, Jianfeng Yu, and Feng Gao), Review of Financial StudiesJune 2017, Volume 30, Issue 6, Pages 2006–2065.

With uncertain profitability in dynamic agency relationship, the agent has incentive to shirk to manipulate the principal's future belief, giving rise to a long-lasting hidden information problem. The optimal contract implements time-decreasing effort, and has a feature of "stock options" in that incentive goes up after good performance.


(4) Uncertainty, Risk, and Incentives: Theory and Evidence (with Zhiguo He, Si Li, and Jianfeng Yu), Management Science, January 2014, Volume 60, Issue 1, Pages 206-226.

In contast to a negative risk-incentive relation predicted by standard agency theory, the learning-by-doing effect may lead to a positive uncertainty-incentive relation. We present empirical evidience that is consistent with this prediction.
  • 2013 The Chinese Finance Association (TCFA) Best Paper Award

(3) Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries (with Samir Jahjah and Vivian Zhanwei Yue), Journal of Money, Credit and Banking, October 2013, Volume 45, Issue 7, Pages 1275-1300. 

We find that countries with a less flexible exchange rate regime are less likely to issue bonds and pay higher spreads.


(2) A Model of Portfolio Delegation and Strategic Trading (with Albert S. Kyle and Hui Ou-Yang), Review of Financial Studies, November 2011, Volume 24, Number 11, Pages 3813-3840.

This article endogenizes information acquisition and portfolio delegation in a one-period strategic trading model. We find that, when the informed portfolio manager is relatively risk tolerant (averse), price informativeness increases (decreases) with the amount of noise trading. 

(1) Endogenous Events and Long Run Returns (joint with S. "Vish" Viswanathan), Review of Financial Studies, April 2008, Volume 21, Number 2, Pages 855-888.

We present theory and simulations for event studies when events are endogenous. Applications of the theory to long-term returns after IPOs and SEOs are discussed.