Working Papers
"Feedback Effects, Market Valuations, and Real Efficiency," 2024. [Link] [R&R at Journal of Economic Theory]
This paper studies the interdependence of myopic corporate behavior and the so-called feedback effect, where financial prices contain useful information for corporate decision making. We model the feedback effect in a mostly standard trading environment, except that the existence of equilibrium and its tractable analysis are ensured by Pareto distribution of productivity. The analysis shows that the feedback effect causes a price inflation and the resulting long-term productive inefficiency, which can be understood in the context of innovation strategies. It sheds light on the negative side of learning from financial prices, and, at the same time, explains its prevalence, which requires the availability of superior information in financial markets.
“Corporate Disclosure, Government Bailout, and Liquidity Crisis,” (with Kyounghun Lee and Frederick Dongchuhl Oh), 2024.
This study examines the effects of a government bailout on corporate disclosure when a firm is exposed to the risk of investors withdrawing their investments from the firm. The government bailout affects the behavior of investors, which, in turn, alters the disclosure behavior of the firm. We find that the firm discloses less (more) than the case without a bailout when investors have pessimistic (optimistic) beliefs about the firm. These changes in disclosure decision reduce investors' expectations about the firm's fundamentals. Therefore, the government bailout can increase the likelihood of the firm facing a liquidity crisis if it distorts the disclosure behavior of the firm.
“Strategic Trading with Uncertain Market Depth,” (with Youcheng Lou), 2025. [Link]
We study a model of strategic trading where an uncertainty over the overall participation of strategic informed and noise traders leads to an uncertainty over market depth. When liquidity is driven by informed trading, expected trading volume is higher and expected price informativeness is lower with such uncertainty over market depth, whereas, when liquidity is driven by noise trading, the signs of these changes are flipped. We also analyze the effects of random variation of the aggregate participation, which confound the effects of average market size on expected trading volume and price informativeness. The confounding effects explain existing evidence on increased price informativeness in lit venues associated with dark pool trading.
“Taxing Speculative Trades as a Prudential Policy,” 2025.
Motivated by the policy debate on financial transaction taxes, this paper analyzes a model of primary financial markets with financially constrained entrepreneurs and investors subject to asset-holding costs or risk aversion, as well as its extension with secondary-market trades which arise from a shock to some of these investors. The analysis of the basic model indicates underproduction in the real sector and overissuance of underpriced assets, calling for policy intervention. Next, the extended model is analyzed to characterize the optimal policy mix to correct these inefficiencies, which consistently involves subsidizing primary-market asset purchases and taxing secondary-market transactions. The latter can be viewed as a Tobin-tax-like policy instrument to reduce price fluctuations across states and its rate is higher for riskier and more profitable asset issuers.
Work in Progress
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Publications
“Overconfidence and Correlated Information Structures,” The Economic Journal, 135(668), 1300-1340, 2025 https://doi.org/10.1093/ej/ueae112
"A Large Creditor in Contagious Liquidity Crises," (with Frederick Dongchuhl Oh), Journal of Banking and Finance, 146, 106706, 2023.
"Managerial Incentives and the Medium of Exchange in Takeovers," (with Frederick Dongchuhl Oh), Managerial and Decision Economics, 43(8), 4077-4086, 2022.
“The Impact of Mandatory K‐IFRS Adoption on IPO Underpricing,” (with Hyun Duk Lee and Frederick Dongchuhl Oh), International Journal of Finance and Economics 27, 1101-1119, 2022.
“The Efficiency of Financial Holding Companies in Korea,” (with Garam Ahn and Frederick Dongchuhl Oh), Korean Economic Review, 36(1), 29-58, 2020.
“Potential Competition and Quality Disclosure,” (with Frederick Dongchuhl Oh), Journal of Economics and Management Strategy, 28(4), 614-630, 2019.
“Credit Ratings and Corporate Disclosure Behaviour: Evidence from Regulation Fair Disclosure in Korea,” (with Frederick Dongchuhl Oh), Applied Economics, 49(35), 3481-3494, 2017.
“Hierarchical Outcomes and Collusion Neutrality on Networks,” (with Biung-Ghi Ju), European Journal of Operational Research, 254(1), 179-187, 2016.