"Globalization and Taste Heterogeneity: Evidence from Hollywood" with Simon Fuchs

To what extent is the set of products available to a country driven by the composition of international markets? We develop a quantitative framework to determine taste heterogeneity and to analyze changes in the international market structure. We apply our framework to the global movies market where we can abstract from price competition and observe identical products and their market shares across countries. We evaluate the hypothesis that the observed large increase in the revenue share of sequels has been due to shifts in the composition of global demand away from traditional Western markets towards emerging countries. This shift might have increased the penalty of “missing the mark” in the taste space and therefore caused an increase in sequel production. While we do find substantial shifts in the profit space and lower risk associated with sequels, our current simulations suggest that the risk due to taste heterogeneity in the movies market is quantitatively insufficient to explain the increase in the revenue of sequels, suggesting that other forces such as scale economies might be at play.

"Innovation and Corporate Cash Holding in the Era of Globalization" with Jaebin Ahn and Mai Chi Dao

We document a broad-based trend in rising cash holdings of firms across major industrialized countries over the last two decades, a trend that is most pronounced for firms engaged strongly in R&D activities. Our contributions to the literature are twofold. First, we develop a simple model that brings together the insights from modern trade theory (Melitz, 2003) with those of contract theory in corporate finance (Holmström and Tirole, 1998) to show that increased openness to trade can result in rising returns to innovation and in turn greater demand for cash as firms insure against innovation-induced liquidity risk. Second, we derive sharp empirical predictions and find supporting evidence for them using firm-level data across major G7 countries during 1995-2014, a period that saw an unprecedented rise in globalization and business innovation.

Publication:

"Thousands of BEERs: Take your pick" with Christian Grisse

This paper explores the robustness of behavioral equilibrium exchange rate (BEER) models. We highlight the importance of model uncertainty, and employ real exchange rates computed from price‐level data to explore robustness to the inclusion of country fixed effects. The estimated coefficients—and therefore also the implied equilibrium values—are sensitive to the combination of variables included in the model, and to the inclusion of fixed effects. We identify several variables that exhibit a robust link with real exchange rates across specifications. Our findings can help policymakers in understanding the uncertainty associated with estimates of equilibrium exchange rates.

Review of International Economics, vol. 25(5), pages 1078-1104, November 2017

Other Research:

"Are Markets Moved by Bad News? Evidence from International Aviation Accidents" with Steve Lawford

We investigate the impact of aviation accidents on stock index returns. We find that the strong and significant negative impact of accidents on NYSE index returns found by Kaplanski and Levy (2010) becomes much weaker when we control for just a few extreme accidents. These unusually high-impact events generally involve acts of terrorism, such as 9/11, or otherwise coincide with major economic events that were unrelated to the accidents. Our results cast doubt on event studies which suggest that investor mood alone can cause stock markets to suffer large losses.