Publications

• Adverse Selection and Liquidity Distortion  Review of Economic Studies, 85.1 (2018): 275-306

• Selection versus Talent Effects on Firm Value (jointly w/ Harrison Hong) Journal of Financial Economics, 133.3 (2019): 751-763

• The Market for Conflicted Advice (jointly w/ Martin Szydlowski) Journal of Finance,  75.2 (2020): 867-903

Working Papers

• Sorting Out the Real Effects of Credit Supply  (jointly w/ Harrison Hong, Matthieu Gomez)  Conditionally Accepted, Journal of Financial Economics

  • Abstract:  We document that banks that cut lending more during the Great Recession were lending to riskier firms ex-ante. To understand the aggregate implications of this sorting pattern, we build an assignment model in which banks have heterogeneous costs to take on risky loans and firms have different credit risks. In the model, aggregate loan volume depends on the entire distribution of bank holding costs and firm credit risks. We then use our model to recover the change in the distribution of bank holding costs during the Great Recession and quantify its effect on aggregate loan volume. 

• Endogenous Market Making and Network Formation  (jointly w/ Shengxing Zhang) R&R (2nd Round), Journal of Economic Theory

  • Abstract: We propose a new framework of the financial over-the-counter market that jointly determines traders' interconnectedness with asset prices and allocations. Traders are homogeneous and face uncertainty about their trading needs ex ante. We establish that traders adopt asymmetric trading strategies to target their future counterparties more efficiently. In markets where holding unbalanced inventory is costly, a multilayer hierarchical market structure emerges, where traders at a higher tier are committed to providing immediacy to traders at lower tiers and become more central and have higher expected volumes. Such predictions are consistent with the empirical evidence in the interdealer market for dealer centrality, intermediation markups, and the distribution of intermediation chain lengths.

• Financial Market Structure and Risk Concentration (jointly with Shengxing Zhang) 

  • Abstract: We propose a model that jointly determines risk allocations and banks' bilateral trading networks. In the model, banks use their bilateral connections to either share or concentrate their risk exposures. Even when banks are ex-ante homogeneous and risk-averse, they may take risks collectively by concentrating risks on a small set of banks. Our framework highlights the possibility of a structural shift, which predicts discontinuous changes in aggregate risks and transaction prices. We use this framework to analyze the distribution of bank balance sheets and to evaluate the responses of the market structure to regulations

• The Fundamental Role of Uninsured Depositors in the Regional Banking Crisis (jointly w/ Ing-Haw Cheng, Harrison Hong)

  • Abstract: We re-examine the role of uninsured depositors through the lens of fundamentals and the idea that uninsured depositors are valuable clients who demand loans. We provide new stylized facts showing that banks with more uninsured deposits --- who experienced greater equity value declines during the crisis of 2023 --- had greater stock price risk, profitability, market valuations, and executive pay before the crisis. To explain these facts, we develop a model where banks better at risk-taking attract large uninsured depositors who have loan demand. Rising interest rates and decreased loan demand reduce lending-relationship values, leading to outflows from riskier banks. 

• Non-Pecuniary Preferences of Talented Employees (jointly w/ Ioannis Branikas, Harrison Hong, Nan Li)

  • Abstract:  Surveys indicate that talented employees trade off wages to achieve work-life balance or sustainability goals and companies use such workplace amenities to compete for talent. There is also a strong correlation in US data between wages and these amenities due to firm size. To reconcile these findings, we model a labor market where companies compete for talent by offering wages and costly amenities.  More talented sort to bigger firms and receive higher wages and amenities, with the mix  determined by their preference. A larger amenities weight yields a more compressed wage (versus firm-profit) distribution. Using this model-implied restriction, we estimate a statistically significant 30% weight, hence rejecting a purely pecuniary model.

• Buy versus Rent Heuristic (jointly w/ Hyun-Soo Choi, Harrison Hong, Jeffrey Kubik, Mark Rempel)

  • Abstract: A widely-used heuristic in real estate is that households are better off searching for a home in housing markets with low price-to-rent ratios. Through the lens of a model of search for differentiated homes and time-varying rents, we assess the implications of this heuristic for the expected surplus of US home buyers. We propose model-implied restrictions, based on rents, transactions prices and days on the market, to estimate our model. Within cities, lower price-to-rent is significantly associated with higher expected buyer surplus only for large dense urban cities. Across similarly dense cities, variation in price-to-rent ratios are unrelated to expected buyer surplus as it reflects better average match quality rather than bargaining power between buyers and sellers.  

• A Search Theory of Sectoral Reallocation

  • Abstract: The paper contributes a theoretical framework to analyze how the labor market responds differently to aggregate and sectoral shocks in the presence of search frictions and imperfect mobility. In contrast to the previous literature, which views sectoral shocks as exogenous shocks on matching efficiency, the aggregate impacts of sectoral shocks are the endogenous outcome of the optimal hiring and moving decisions of firm and workers. It shows that, perhaps surprisingly, consistent with recent empirical findings, a pure sectoral shock will not affect the aggregate unemployment. Moreover, during the transition, the aggregate wage increases despite of the decrease in the aggregate productivity.  

In Progress

• Green Mandates in Two-Sided Markets (jointly w/ Harrison Hong)