with Gregory Brown and Christian Lundblad (revise & resubmit Review of Financial Studies 2019)
Abstract: A growing body of research examines the implications of common holdings for asset price determination; however, far less is known about the impact of hedge fund ownership concentration on risk and return. Yet, hedge fund positions are an important component of the degree of crowdedness because these investment vehicles tend to be particularly active in their pursuit of outperformance, they often take highly concentrated positions, and they utilize leverage and short sales. Using a large database of U.S. equity position-level holdings for hedge funds, we measure the degree of security-level crowdedness. We construct a new factor by taking the difference between returns of high and low crowdedness portfolios. The average return on the crowdedness factor is sizable, and its variation is distinct from other traditional risk factors for U.S.equities. When hedge fund returns are regressed onto other risk factors and the crowdedness factor, the exposures to the latter are often statistically and economically significant in explaining hedge fund return variation. Most important, the crowdedness factor is related to downside "tail risk" as stocks with higher exposure to crowdedness experience relatively larger drawdowns during periods of market distress. This tail risk extends to hedge fund portfolio returns as the crowdedness factor explains why some funds experience relatively large drawdowns or even death.
with Riccardo Colacito, Mariano M. Croce, and Steven Ho (American Economic Review 2018)
Abstract: We study the response of international investment flows to short- and long-run growth news. Among developed G7 countries, positive long-run news for domestic productivity induces a net outflow of investments, in contrast to the effects of short-run growth shocks. We document that a standard Backus, Keho, and Kydland (1994) (BKK) model fails to reproduce this novel empirical evidence. We augment this model with Epstein and Zin (1989) preferences (EZ-BKK) and characterize the resulting recursive risk-sharing scheme. The response of international capital flows in the EZ-BKK model is consistent with the data.
Job Market Paper (April 2016)
Abstract: In a New-Keynesian model subject to the zero lower bound (ZLB), constrained monetary policy endogenously results in time-varying equity risk premia and equity-bond market correlations. Liquidity traps at the ZLB are characterized by negatively skewed and increasingly uncertain consumption growth, labor growth, and inflation. Investors with recursive preferences price the liquidity traps, resulting in rising equity risk premiums. Real bond yields and equity returns become negatively correlated at the ZLB, while positive in normal times. The model provides a general equilibrium foundation for 1) the time-varying comovement amongst macroeconomic quantities and asset prices observed during the the Great Recession and 2) why real bonds ceased to provide investors with insurance at the ZLB, precisely when they valued it most.
with Roberto Camassa, Bong Jae Chung, Richard McLaughlin, and Ashwin Vaidya (Advances in Mathematical Fluid Mechanics 2010)
Abstract: We study the orientational behavior of a hinged cylinder suspended in a water tunnel in the presence of an incompressible flow with Reynolds number (Re), based on particle dimensions, ranging between 100 and 6000 and non-dimensional inertia of the body (I*) in the range 0.1–0.6. The cylinder displays four unique features, which include: steady orientation, random oscillations, periodic oscillations and autorotation.We illustrate these features displayed by the cylinder using a phase diagram which captures the observed phenomena as a function of Re and I*. We identify critical Re and I* to distinguish the different behaviors of the cylinders. We used the hydrogen bubble flow visualization technique to show vortex shedding structure in the cylinder’s wake which results in these oscillations.