Research

    Abstract: We develop an endogenous growth model with heterogeneous firms facing financial frictions, in which misallocation emerges explicitly as a crucial state variable. The model demonstrates that macroeconomic shocks that affect misallocation can generate persistent effects on aggregate growth. In equilibrium, the slow-moving misallocation endogenously generates long-run uncertainty about economic growth by distorting innovation decisions. When agents have recursive preferences, the misallocation-driven low-frequency growth fluctuations lead to significant welfare losses and risk premia in capital markets. Using an empirical misallocation measure motivated by the model, we provide evidence that misallocation captures low-frequency fluctuations in both aggregate growth and stock returns.

    Please find the Online Appendix and A Note on Additional Materials here.

    - Review of Economic Studies, Revise and Resubmit, Oct 2025

    Abstract: Ideological customer capital—the customer base loyal to a firm's brand due to shared ideology—acts as a critical intangible asset that directly drives the firm's cash flows. We use federal procurement to measure a firm's ideological customer capital attributed to the government and study its asset pricing implications. The U.S. government is a major customer and has the discretion to consider ideological factors in procurement. Leveraging detailed contract-level data, we develop and structurally estimate a procurement auction model and find that a firm's procurement revenues are significantly driven by its ideological alignment with the government, specifically regarding its political leaning, sustainability, gender composition, and exposure to China. Constructing a model-implied measure of firm-level ideological customer capital, we show that firms with higher levels of this capital are significantly less exposed to aggregate cash flow risk.

    Please find the Online Appendix here.

    - Presented at: ABFER Annual Conference, AFBC, CICF, CICM, HKUST, NZFM, SAIF Annual Research Conference, SBFC, SFS Cavalcade Asia-Pacific, SUFE-HKUST Joint Symposium, and Tsinghua SEM Alumni Conference.

    Abstract: I develop a two-tier asset demand system that incorporates endogenous aggregate allocation and short sales, and propose a two-step estimation procedure with a novel instrument for aggregate estimation, which allows me to exploit both cross-sectional and time-series variation in institutional holdings. The estimated system provides a framework to answer questions related to demand-side effects of financial intermediaries and short sales in both aggregate and individual stock markets. I find institutional demand accounts for a large proportion, if not all, of observed return premiums in size, value, and investment. The short leg, while increasingly important, cannot explain observed anomaly returns and the formation of the dot-com bubble. However, short sales do have a significant yet disparate pricing impact on stocks with different characteristics. In the aggregate stock market, unobserved aggregate preference and beliefs, rather than risk-return balance, are the main drivers of the return predictability of the dividend-price ratio.

    - Presented at: HKUST Seminar, Penn Economics Seminar, Texas A&M Seminar, and Wharton Macro Seminar.