RESEARCH

PUBLICATIONS

“De Facto Bank Bailouts: The U.S. influence in the IMF” (with Phong Ngo) forthcoming at the Journal of Financial and Quantitative Analysis

The U.S. government uses its voting power to direct IMF loans to countries where U.S. banks are exposed to sovereign default—a de facto bailout. This effect is stronger in years when the costs of direct bailouts are higher and is also found among major European IMF members. We find that de facto bailouts reduce government incentives to default and that U.S. Congressional voting on IMF funding is consistent with a private interest view of government. Overall, we identify an alternative mechanism through which governments can backstop the losses of large multinational banks.

WORKING PAPERS

“What Can Volatility Smiles Tell Us about the Too Big to Fail Problem?” (with Phong Ngo)

This paper exploits the information content of option markets to offer fresh insight into the Too-Big-to-Fail (TBTF) problem for banks. I employ option prices to construct a forward-looking measure of bank exposure to significant price drops (i.e. tail-risk) and explore cross-sectional differences between large banks with at least $50B in assets identified as systemically important and smaller banks. I document a permanent increase in the average tail-risk of the U.S. banking industry as a whole following the Global Financial Crisis (GFC), except for banks above the $50B size threshold. I argue that the stark post-crisis difference in tail-risk for banks above and below the $50B threshold is consistent with the notion that the TBTF status of above 50B banks was reinforced by the series of bailouts targeted at them during the crisis and their subsequent designation as systemically important by the Dodd-Frank Act. This in turn raised investor expectations of future bailouts for above 50B banks and reduced their perceived exposure to downside risk as captured by the tail-risk measure.

“Can Financial Literacy Reduce Domestic Violence?” (with Phong Ngo)

Yes. Using data on more than 3.7 million intimate partner violence (IPV) incidents between 1994 and 2016, and exploiting the staggered introduction of state-mandated personal finance high school graduation requirements across U.S. states for identification, we show that improvements in women's financial literacy can significantly reduce the rates of violence against women perpetrated by their male partners. We conservatively estimate a reduction in violence by between 3% and 11% and find similar effects comparing across school cohorts in the same location (i.e. county) or within cohorts across locations. Our evidence points to financial literacy deterring financial abuse and increasing women's contingent income, thereby preventing the first incident from ever occurring.

“Dualism of government guarantees: Evidence from the 2005 FDI Reform Act” (Best PhD paper, 2017 International Finance and Banking Society Conference, University of Oxford)

I present a novel approach to the study of the trade-off between stability and moral hazard induced by deposit insurance. Specifically, I use the FDI Reform Act of 2005 as an exogenous shock to the existing insurance scheme in the US and study its impact on bank risk. This reform raised the coverage limit for individual retirement accounts (IRAs) from USD 100,000 to 250,000. I report an increase in banks' liquidity and insolvency risk caused by this Reform. In addition, I show banks more influenced by the 2005 reform were 38 percentage points less likely to fail during the GFC.

“Reference-dependent preferences under high stakes and experience: evidence from the Australian Open”

I study tennis players' risk-taking behaviour during the 2016 Australian Open. Using spatial features from a proprietary dataset, I estimate a measure of player aggressiveness and find that players shift their risk-taking preferences depending on whether they are behind or ahead in the game-score. These findings are consistent with the axiom of reference- dependent preferences put forward by Prospect Theory. I also show that, other things equal, the probability of winning a point is increasing on shot aggressiveness. Considering the fact that aggressiveness changes with the game-score, this result suggests players could be performing sub-optimally under specific game situations. I therefore provide evidence of reference-dependent preferences and a potential behavioural bias in a context of high competition and experience.