Working Papers

Demand for Information and Asset Pricing (with Azi Ben-Rephael, Zhi Da, and Ryan Israelsen)

Academics typically use the supply of news to study how information affects asset prices. In this paper, we
use measures of demand for information (Bloomberg queries). Increased institutional demand is associated
with higher trading volume, higher average returns, and higher betas. The magnitude of these effects is much
larger than those associated with supply. Consistent with a risk premium explanation, results are stronger for
higher beta firms and when higher quality information is available. Finally, higher institutional demand alleviates
mispricing in the market: this dampens momentum and enhances long-term reversals. When demand for information
increases, the market becomes more efficient.

                 Under review at the Journal of Financial Economics

We provide causal evidence that discount rate changes by the Federal Reserve
 affected economic output
in the 1920s. Our identifi.cation strategy exploits county-level
 variation in access to the Fed's discount window,
and we implement this strategy with 
hand-collected data on banking and agriculture in Illinois in the early
20th century. 
The mechanism for the Fed's effect on agriculture was a bank credit channel, operating 
independently of any deflationary effect on money supply. Our fi.ndings suggest that the Fed deliberately
managed transitory shocks during 1920-1921, mitigating debt burdens 
with which farms would struggle
in the years leading to the Great Depression.

Competing for Capital: Auditing and Credibility in Financial Reporting (with Raphael Boleslavsky and Christoper Cotton)
Under Review at RAND
When self-interested agents compete for scarce resources, they often exaggerate the promise
of their activities. As such, principals must consider both the quality of each opportunity and
each agent’s credibility. We show that principals are better off with less transparency because
they gain access to better investments. This is due to a complementarity between the agents’
effort provision and their ability to exaggerate. As such, it is suboptimal for principals to
prevent misreporting, even if doing so is costless. This helps explain why exaggeration is
ubiquitous during allocation decisions: money management, analyst coverage, private equity
fundraising, and venture capital investments.

Creative destruction not only involves bringing new technology to market, it imposes higher risk on the 
future of existing assets. We characterize the asset pricing implications of creative destruction when investors 
compete for market share. Compared to the social optimum, the quest for oligopoly rents leads to over-investment 
in uncertain projects, spikes in asset prices and risk premia, and an aftermath in which prices fall steeply as 
uncertainty resolves. These pricing patterns resemble a bubble ex post, but arise solely from competitive
behavior and do not require information asymmetry, behavioral biases, or fi.nancial frictions. Our analysis 
yields novel empirical predictions and we discuss how .financial innovation might be used to predict bubbles ex ante.

This paper analyzes the effect of technology adoption on access to information and fi.nancial .fitness across generations.
We use the introduction of a smartphone 
application as a source of exogenous variation to analyze how access
to personal in
formation via fi.nancial management technology affects peoples' tendencies to incur
fi.nancial penalties and choose consumption baskets. We show that better access to information with
technological advance improves decision-making, but differs cross-
sectionally in the population. Baby Boomers
do not adopt technology as much as 
Millennials and members of Generation X, and we quantify the adverse
effect that 
this has on their welfare. Beyond documenting the benefi.t that Millennials and Gen Xers experience
in terms of fi.nancial penalties, we show that each group changes 
their consumption in different ways. Millennials
shift more of their spending to 
discretionary entertainment, whereas members of Generation X remain more austere.
Finally, while men tend to adopt new technology and access information at a 
higher rate than women, the economic impact
per app access is higher for women.

Search Fatigue (with Florian Ederer)

Consumer search is not only costly but also tiring. We characterize the intertemporal effects that search fatigue 
has on monopoly and oligopoly prices, the product lines offered by firms, and the provision of consumer 
assistance (i.e., advice). These effects vary based on whether search is all-or-nothing or sequential in nature, 
whether learning takes place, and whether consumers exhibit brand loyalty. In contrast to standard search 
models, accounting for fatigue leads to product proliferation, time-varying prices and consumer assistance. 
We analyze the welfare implications of search fatigue and highlight the novel empirical implications that our 
analysis generates.
State sponsored retirement plans have been proposed and implemented to provide people with new access 
to defined contribution retirement opportunities. Many of these people have no other options and typically 
have low income and are less educated. We study optimal plan implementation in a theoretical model and 
analyze how the right menu of portfolio options and default option (i.e., libertarian paternalism) should be 
chosen based on the financial sophistication of the participants, their behavioral biases, the prevalent political 
philosophy, and the political economy. The paper provides several novel positive and normative implications, 
which appear to be empirically plausible.

Published Papers

Episodic Liquidity Crises: Cooperative and Predatory Trading (with Miguel Lobo and S. Viswanathan). Journal of Finance 62: 2235-2274, 2007.

Work Ethic, Employment Contracts, and Firm Value (with Simon Gervais). Journal of Finance 64: 785-821, 2009.

Strategic Price Complexity in Retail Financial Markets. Journal of Financial Economics 91: 278-287, 2009.

A Welfare Analysis of Regulation in Relationship Banking Markets (with Raphael Rob). Review of Finance 13: 369-400, 2009.

Public Trust, The Law, and Financial Investment (with Florin Dorobantu and S. Viswanathan). Journal of Financial Economics 92: 321-341, 2009.

Fear and Loathing in Las Vegas: Evidence from Blackjack Tables (with David Robinson). Judgement and Decision Making 4: 385-396, 2009.

Forced Liquidation of an Investment Portfolio. The International Journal of Central Banking December 2009: 173-176.

Optimal Portfolio Liquidation with Distress Risk (with David Brown and Miguel Lobo). Management Science 56: 1997-2014, 2010.

Obfuscation, Learning, and the Evolution of Investor Sophistication (with Gustavo Manso). Review of Financial Studies 24: 754-785, 2011.

Investment in Organization Capital (with Bhagwan Chowdry and Mark Garmaise). Journal of Financial Intermediation 21: 268-286, 2012.

Financial Education and Timely Decision Support: Lessons from Junior Achievement (with David Robinson). American Economic Review Papers and Proceedings 102: 305-308, 2012.

What Does Financial Literacy Training Teach Us? (with David Robinson). Journal of Economic Education 43: 235-247, 2012.

Legal Protection in Retail Financial Markets (with Simon Gervais). Review of Corporate Finance Studies 1: 68-108, 2012.

Competition, Comparative Performance, and Market Transparency (with Shaun Davies and Andrew Iannaccone). American Economic Journal: Microeconomics 4: 202-237, 2012.

Trading Complex Assets (with Shimon Kogan and Richard Lowery). Journal of Finance 68: 1937-1960, 2013.

Libertarian Paternalism, the Production of Knowledge, and Financial Decision-Making (with Simon Gervais and Gustavo Manso). Review of Financial Studies 26: 2204-2228, 2013. 

Disagreement and Asset Prices (with Francis Longstaff and Kyle Matoba). Journal of Financial Economics 114: 226-238, 2014.

Millennial-Style Learning: Search Intensity, Decision-Making, and Information-Sharing (with Li Jiang and Stephen Spiller). Forthcoming in Management Science.

Forthcoming in Management Science.

Work in Progress

Bad Apples and Toxic Teams

Basel Games

Political Contributions and Industry Competition

Information Contests and their Success Functions