Published and Accepted Papers
Too Much Skin-in-the-Game? The Effect of Mortgage Market Concentration on Credit and House Prices, The Review of Financial Studies, 2022
In 2007, as American housing markets started to decline, the government-sponsored enterprises dramatically increased their acquisitions of low FICO and high loan-to-value mortgages. By 2008, the agencies had reversed course by decreasing their high-risk acquisitions. I develop a theory in which large lenders temporarily increase high-risk activity at the end of a boom. In the model, lenders with many outstanding mortgages have incentives to extend risky credit to prop up house prices. The increase in house prices lessens the losses they make on their outstanding portfolio of mortgages. As the bust continues, lenders slowly wind down their mortgage exposure.
De-crypto-ing Signals in Initial Coin Offerings: Evidence of Rational Token Retention (with Tetiana Davydiuk and Sam Rosen), Management Science , 2023
Using the market for initial coin offerings (ICOs) as a laboratory, we provide evidence that entrepreneurs use retention as a method to alleviate information asymmetry. ICO investors face a high degree of uncertainty because of the unregulated and opaque nature of the ICO market. Using a detailed dataset on 5,644 ICOs, we show that ICOs that retain a larger fraction of their tokens are more successful in their funding efforts and are more likely to develop a working product or platform. Specifically, we estimate that a 1 p.p. increase in token retention leads to a 0.1-0.3 p.p. increase in fundraising success. Moreover, we find that retention is a stronger signal when markets are crowded and investors do not have as much time to conduct due diligence.
Utility Tokens as a Commitment to Competition (with Itay Goldstein and Ruslan Sverchkov), Journal of Finance, 2024
We show that utility tokens can limit the rent-seeking activities of two-sided platforms with market power while preserving efficiency gains due to network effects. We model platforms where buyers and sellers can meet to exchange services. Tokens serve as the sole medium of exchange on the platform and can be traded in a secondary market. Tokenizing a platform commits a firm to give up monopolistic rents associated with the control of the platform leading to long-run competitive prices. We show how the threat of entrants can incentivize developers to tokenize and discuss cases where regulation is needed to enforce tokenization.
The Pace of Change: Socially Responsible Investing in Private Markets (with Alexandr Kopytov and Jan Starmans), Forthcoming, Review of Financial Studies
We study the pace at which socially responsible investors can induce firms to reduce negative externalities in private capital markets. Investors with broad preferences, who care about firm externalities independent of their ownership in the firm, value acquiring firms with high production externalities since they can reform these firms. The anticipation of trading gains for firms with high externalities decreases the incentive of current firm owners to reduce externalities, causing a potential delay in reform. Investment mandates through which investors can commit to paying a premium for firms with low production externalities can incentivize reform in a timely manner.
Concentration in Mortgage Markets: GSE Exposure and Risk-Taking in Uncertain Times (with Ronel Elul and David Musto), Management Science, 2025
When home prices threaten to decline, large mortgage investors can benefit from fostering new lending that boosts demand. We ask whether this benefit contributed to the growth in acquisitions of risky mortgages by the Government Sponsored Enterprises (GSEs) in the first half of 2007. We find that it helps explain the variation of this growth across regions as well as regional house price and credit changes. The growth predicted by this benefit is on top of the acquisition growth caused by the exit of private-label securitizers. We conclude that the GSEs actively targeted their acquisitions to counter home-price declines.
Dynamic Green Disclosure Requirements (with Jan Starmans), Revise and Resubmit, Journal of Finance
This paper studies the design of green disclosure requirements to support firms' green transition. In our dynamic model with socially responsible investors, firms' green transition is a multi-step process. We show that dynamic green disclosure requirements that become more stringent over time can be preferable to full transparency. While such requirements may slow down the green transition for some firms, they can increase the number of firms that eventually reform. Specifically, less stringent initial requirements create a mis-valuation subsidy that can overcome bottlenecks in the early stages of the transition process. In contrast, stricter requirements facilitate the later stages of the green transition. Our results establish a link between the characteristics of the transition technology and green disclosure requirements, which can be applied to recent policy initiatives that introduced mandatory green disclosure requirements.
Sustainable Investing and Market Governance (with Alvin Chen and Jan Starmans), Revise and Resubmit, Journal of Financial Economics
This paper examines how sustainable investing affects the traditional governance role of financial markets. We show that stronger pro-social preferences among informed investors can reduce price informativeness about managerial effort toward improving financial performance, thereby increasing the cost of incentive provision. While this creates an agency cost, it can paradoxically generate positive real effects: because firms generating negative externalities face higher agency costs, purely financially motivated shareholders have incentives to reduce externalities to enhance price informativeness for governance purposes. Our results reveal an inherent link between firms' environmental and social (the "ES" of ESG) and governance (the "G" of ESG) outcomes. We also identify a novel complementarity between voice and exit in reducing firm externalities-pro-social investors' exit decisions prompt financial investors to exercise voice-in contrast to the conventional view of these strategies being substitutes.
Insuring Climate Risks in Integrated Markets (with Michael Sockin and Jan Starmans)
We develop a spatial model of climate risks when goods markets across regions are economically integrated but firms can only insure against local climate shocks. We show that firms' insurance demands across regions can be strategic complements or substitutes depending on the correlation of climate shocks across regions. Strategic complementarity can result in equilibrium multiplicity when regions are highly integrated, leading to underinsurance traps. Underinsurance can persist even at actuarially fair insurance premiums and can be Pareto dominated by an economy without insurance markets. We show that insurance market collapse in one region creates contagion effects, potentially contracting insurance markets in other regions. Insurance subsidies can paradoxically worsen the underinsurance problem.
Housing Prices and Real Investment: Collateral vs. Crowding-Out Effects (with Itay Goldstein)
There is active debate about whether high real estate prices benefit or hurt investment. In this paper, we propose a theoretical framework to evaluate policies that target real estate prices and investment. Our model incorporates two documented empirical effects that real estate prices can have on investment --- a collateral channel and a crowding-out channel. Optimal policy depends on the relative magnitude of these two effects and requires opposing interventions in demand and supply, i.e. subsidizing one while taxing the other. The distribution of collateral, rather than its aggregate level, determines the net effect of real estate prices on surplus.
A Theory of Syndicated Loans (with Jan Starmans)
We develop a theory that rationalizes syndicated loans with (1) a relationship lender who lends to the firm repeatedly over time and monitors the firm, (2) transactional lenders who lend to the firm infrequently and do not monitor, and (3) frequent loan renegotiations. Transactional lenders are biased towards liquidation, whereas relationship lenders are biased towards continuation. By borrowing simultaneously from both types of lenders, the firm generates disagreement between them. This disagreement induces costly renegotiation upon default, which can increase monitoring incentives and thereby reduce the firm’s cost of credit.
Income Inequality, Debt Burden and COVID-19 (with Tetiana Davydiuk)
There have been stark differences in the ability of low-income and high-income individuals to protect themselves during the COVID-19 pandemic. We show that debt burdens contribute to this inequity by disproportionately increasing the cost to low-income individuals of reducing mobility during pandemics. Using a triple difference specification, we document that low-income individuals with high debt burdens are 6% more mobile than less constrained high-income individuals after the spread of coronavirus in the United States. Furthermore, this effect is exacerbated for African-American borrowers. Additionally, we provide suggestive evidence that this debt burden channel could have contributed to 2.16% more COVID-19 cases.
