Martin C Schmalz

Harry H. Jones Research Scholar  |  Assistant Professor of Finance  |  Stephen M. Ross School of Business  |  University of Michigan  |  R5456  |  Ann Arbor, MI 48109-1234  |  +1 734 763 0304  |   |   SSRN author page   |  twitter

CV [pdf]

I am a financial economist.

  • My latest project at the intersection of industrial organization, finance, and corporate governance measures how common ownership of firms by very large asset managers affects product market competition.
  • Several projects in corporate and entrepreneurial finance examine the impact of labor relations, collateral constraints, macroeconomic conditions, and heterogeneous beliefs on financing, risk management, and entrepreneurial activity.
  • My papers in financial economics explain why Bayesian investors who are uncertain about the degree to which their assets are exposed to systematic risk learn more about the value of their assets in some market states than in others.
  • A mostly theoretical agenda in behavioral finance and asset pricing investigates the role of horizon-dependent risk aversion in financial decision making, asset pricing, and belief formation.

Upcoming Talks

  • Dec   4: University of Virginia
  • Dec 11: Lancaster University (UK)
  • Dec 14: DICE (Düsseldorf)
  • Dec 15-16: TAU Finance Conference (Tel Aviv)
  • Dec 17-18: European Central Bank (Frankfurt)
  • Jan 3-5: AFA Meetings (San Francisco)

Journal Articles

  1. "Housing Collateral and Entrepreneurship(with David Sraer and David Thesmar) provides evidence that collateral constraints restrict entrepreneurial activity. [The Journal of Finance, forthcoming]

  2. "Can Changes in the Cost of Carry Explain the Dynamics of Corporate Cash Holdings?(with José Azar and Jean-François Kagy) shows that changes in the costs of holding cash can explain secular trends in U.S. corporate cash holdings, as well as cross-country variation in the level of cash. [Review of Financial Studies, forthcoming]

  3. "Up Close It Feels Dangerous: Anxiety in the Face of Risk(with Thomas Eisenbachdescribes the behavior of an agent that is more risk-averse for imminent than for distant risks, derives asset pricing implications, and outlines institutional responses. [Journal of Financial Economics, forthcoming]

Book Chapter

"Payout Policy
" (with Joan Farre-Mensa and Roni Michaely) reviews the literature on corporate payouts. [In: Robert Jarrow (Ed.), Annual Review of Financial Economics, 2014]

Working Papers 

Industrial Organization, Finance, and Corporate Governance

Suppose you own shares of all firms in the same industry. Would you push these firms to compete extra hard with each other? Do you think real-world institutional investors do?

"Anti-Competitive Effects of Common Ownership(with José Azar and Isabel Tecu) shows that common ownership of natural competitors by diversified asset managers causes higher product prices. Here is a note detailing a mechanism. Here is a paper by Einer Elhauge on legal implications.

[Online Appendix] [Webcast] [Solicited and submitted]

Media coverageSlate, Financial Times (1/2), Digitopoly, BloombergView (1/2/3/4/5), Economist (1/2), FT Alphaville, Eric Posner, Equitable GrowthAmerican Bar Association, Atlantico (in French)WSJ Heard on the Street, Economist's View, Bloomberg Businessweek, Wirtschaftswoche (in German)ValueWalkWall Street Journal & WSJ Moneybeat, Handelsblatt, Quartz, Business Standard (India), Bloomberg BusinessLexology

Corporate Finance

"Financing Payouts(with Joan Farre-Mensa and Roni Michaely) shows that a large fraction of dividends and repurchases are financed with simultaneous securities issuances. [R&R at the Journal of Financial Economics]

"Unionization, Cash, and Leverageuses a regression discontinuity to identify the causal effect of unionization on firms' financial policies.

"Optimal Security Design with Disagreement" (with Juan Ortner) predicts the optimality of debt, pooling, tranching, and convertibles, based on the assumption that issuers / entrepreneurs are more optimistic than their financiers. [On the AFA 2016 program]

Bayesian Learning in Financial Economics

"Revealing Downturns(with Sergey Zhuk) explains theoretically why investors learn more about firm value in bad times, and shows empirically that earnings response coefficients increase in downturns. Negatively skewed stock returns and conditional volatility are a direct consequence of Bayesian parameter learning. [Online Appendix] [R&R (3rd round) at the Review of Financial Studies]

"Performance Measurement with Uncertain Risk Loadings(with Francesco Franzonishows that rational investors who are uncertain about the risk exposure of projects learn more about projects' value, and therefore reallocate more capital across projects, in times with moderate factor realizations, compared to times with more extreme factor realizations. The flow-performance relation in the mutual funds sector exhibits the predicted non-monotonic pattern. [On the Fall 2013 NBER Asset Pricing program. R&R at the Review of Financial Studies.] 

Behavioral Finance

"Anxiety, Overconfidence, and Excessive Risk Taking(with Thomas Eisenbach) shows that dynamically inconsistent risk preferences, combined with a possibility to forget, imply overconfidence and excessive risk-taking. [Featured on Seeking Alpha]

Asset Pricing

"Asset Pricing with Horizon-dependent Risk Aversion(with Marianne Andries and Thomas Eisenbach) develops solution techniques for multi-period general equilibrium asset pricing models with dynamically inconsistent risk preferences. The model's predictions for the term structure of risk premia in equity markets and the market for volatility risk find support in the data. [On the Fall 2014 NBER Asset Pricing and 2016 AFA program]

"The Term Structure of the Price of Variance Risk(with Marianne AndriesThomas Eisenbach, and Yichuan Wang) estimates an option pricing model to show that the price of variance risk -- not only its quantity -- decreases with maturity. This finding helps distinguish between alternative asset pricing models.

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