Research Interests
Heterogeneous Households, Expectation Formation, Wealth Inequality, Macro-Public Finance
Working papers
Heterogeneous Diagnostic Expectations and Wealth Inequality. (Job Market Paper). Link
Using U.S. microdata, we show that households overreact to recent experience when forming expectations about future finances: expectations are too optimistic after favourable experiences and too pessimistic after adverse experiences. Such overreaction is stronger among households with lower income, lower educational attainment, and lower numerical ability. We represent this latent heterogeneity as permanent differences in overreaction strength in a Krusell--Smith economy with diagnostic expectations. Favourable experiences during expansions make stronger overreactors too optimistic and reduce saving, while adverse experiences during recessions make them too pessimistic and increase saving. Because expansions are more frequent than recessions, stronger overreactors undersave on average and accumulate less wealth. The model therefore generates a negative relationship between overreaction strength and wealth. The same mechanism makes wealth inequality pro-cyclical, consistent with recent empirical evidence. A 1% wealth tax with a uniform rebate delivers a consumption-equivalent welfare loss under diagnostic expectations, compared with a gain under rational expectations.
Presented at: Vienna Macro Workshop 2026*, Manchester Brownbag Seminar 2026, EEA-ESEM 2026, Money Macro Finance PhD Conference 2026, Royal Economic Society 2026, Manchester PhD Seminar 2026, Econometric Society World Congress 2025, NWSSDTP 2026/2025, Manchester PhD Conference 2025, Royal Economic Society PhD Conference 2024.
*scheduled
Award: Peter Sinclair Best Paper Prize, second place (MMF PhD Conference 2026)
Herding and Contrarianism under Diagnostic Expectations. Link
This paper studies informational herding and contrarian behaviour in a sequential trading model. In the canonical rational expectations model, informed traders continue to act on their private signals, and price adjustment is powerful enough to rule out herding and contrarian behaviour. I show that this conclusion relies on the Bayesian use of public information summarized in prices. When some informed traders form diagnostic expectations, they overweight the asset state that recent public information has made more representative relative to an earlier public history. This overreaction can make public news dominate private information. Diagnostic informed traders may then disregard their private signal and trade with or against the direction favoured by current public beliefs. The mechanism survives even when prices respond to order flow and the market maker accounts for diagnostic traders in pricing. The paper identifies a belief-based channel through which price histories can generate herding and contrarian behaviour in sequential trade.
Presented at: Financial Management Association European Conference 2024; Behavioural Finance Working Group 2024; Scottish Economic Society 2024; Royal Economic Society 2024, Econometric Society European Winter Meeting 2023.
Work in progress
Redistribution without Rational Expectations, with Patrick Macnamara and Raffaele Rossi
Pareto Optimal Reforms, with Patrick Macnamara and Raffaele Rossi