Jeongmin "Mina" Lee's website
Hello! I'm an assistant professor in the finance department at the Olin Business School of Washington University in St. Louis.
I work on market microstructure, financial intermediation, and asset pricing.
Consumers as Financiers: Consumer Surplus, Crowdfunding, and Initial Coin Offerings, with Christine Parlour [March 2019] Revise & Resubmit Review of Financial Studies
Product market competition prevents an entrepreneur from extracting the full social surplus from consumers once investment is sunk. Indeed, a project with positive net surplus may generate negative net cash flow. Hence, traditional intermediaries following an NPV rule fail to fund all socially efficient projects, even absent other frictions. Competition is a double-edged sword – the surplus consumers enjoy from the product market prevents the project from being funded in the first place. Direct funding by a large group of consumers, i.e. crowdfunding, mitigates the underinvestment problem by allowing consumers to commit to pay for their surplus. When consumers have short time horizons, a resale market for the consumers’ claims helps fund long-term projects. Yet underinvestment persists, since future consumers cannot commit to pay for their surplus. Speculative premium can restore efficiency, but also can cause overinvestment. We provide testable implications on the efficiency of crowdfunding with an active resale market, as in the case of initial coin offerings.
The Opportunity Cost Channel of Collateral with Jason Donaldson and Giorgia Piacentino [December 2018]
We develop a dynamic model of borrowing and lending in the interbank market in which banks fund investments through short-term collateralized debt, like repos. This debt is not a perfect substitute for cash: lending banks may not be able to convert their loans to cash to fund their own investments. Hence, lending comes with an opportunity cost that generates positive spreads even absent any credit risk. These spreads enter banks’ collateral constraints, generating a two-way feedback between the opportunity cost in the credit market and the price of collateral in the asset market. This feedback results in instability in the form of multiple equilibria, casting light on repo runs. It highlights the unique fragility present in the bilateral repo market, in which banks borrow from one another, but not in the tri-party repo market, in which banks borrow from passive cash investors, who do not suffer the opportunity cost. We show that high-leverage equilibria are inefficient in booms; hence, the model suggests a new rationale for counter-cyclical capital regulation: to select the efficient equilibrium.
Revisiting Habit and Heterogeneous Preferences with Tao Li and Mark Loewenstein [October 2018]
Do heterogeneous preferences matter for explaining dynamics of asset prices? We study this question in a model, in which agents form external habits and have heterogeneous risk aversion. After fully characterizing equilibrium and providing necessary and sufficient conditions for the existence of equilibrium, we show that only heterogeneous preferences, but not homogeneous preferences, can generate the predictability of the price-dividend ratio for future stock returns, consistent with the data. This result contrasts with that of Xiouros and Zapatero (2010), in whose model we show that equilibrium does not exist. Our results highlight the importance of verifying the existence of equilibrium, a step that is often neglected in the literature.
When Are Financial Markets Perfectly Competitive? with Pete Kyle [September 2018] Revise & Resubmit Journal of Finance
We study competitiveness of financial markets in a one-period model, in which traders speculate on private information and hedge endowment shocks. Developing and fully characterizing a new measure of market competitiveness, we find that market becomes perfectly competitive if and only if the number of traders approaches infinity and speculation becomes negligible relative to hedging. While perfect competition – the key assumption for rational expectations equilibrium – is a strong condition, we show when it can be made innocuous and when it cannot. We discuss further implications of market competitiveness for the measurement of liquidity and the real-world financial market design.
Publications and Forthcoming
Toward a Fully Continuous Exchange with Pete Kyle; Oxford Review of Economic Policy (Volume 33, Issue 4, 2 November 2017)
We propose a new market design for a securities exchange to level the playing field for all traders.
Working Papers Partially Incorporated in Later Work
Information and Competition with Speculation and Hedging with Pete Kyle
Superseded by "When Are Financial Markets Perfectly Competitive?"
Superseded by "The Opportunity Cost Channel of Collateral"
Office: Simon Hall, Room 212,
One Brookings Drive, St. Louis, MO 63130-4899