Working Papers (in order of "recently updated")

1.  Rolling the Skewed Die: Economic Foundations of the Demand for Skewness and Experimental Evidence,  with Andreas Aristidou, Aleks Giga and Fernando Zapatero

Revise and Resubmit, Journal of Financial Economics

Skewness is pervasive across financial instruments, and it is well documented that many investors seek idiosyncratic skewness in their portfolios. Building on an aspirational utility function reminiscent of Friedman and Savage (1948), we show that keeping up with Joneses motifs through the acquisition of non-divisible status goods lead to optimal purchase of right-or left-skewed securities, even if they have non-positive expected payoffs. Under our framework, we identify and analyze the conditions that drive the demand for skewness. Our analysis yields a rich set of implications broadly consistent with prior empirical observations and the results from a novel laboratory experiment we conducted. In two studies, participants choose amongst binary lotteries with the same mean and variance but different skewness levels. Treatments differed by how much (the location) participants needed to earn in order to achieve an experimentally-induced aspirational good. We find evidence that, as the location of the aspirational good changed, participants sought more (positive or negative) skewness in their lottery choices consistent with improving their chances of achieving that good.

2. Distribution-Dependent Value of Money: A Coalition-Proof Approach to Monetary Equilibrium, with Ohik Kwon and Byoung-Ki Kim

We present a monetary model tailored to cryptocurrencies. Motivated by the heavily skewed (cross-sectional) distribution of cryptocurrency observed in reality, we firstly aim to understand how the distribution of money affects its value as medium of exchange. We document a network effect: the value of a given unit of money is higher when its distribution is even, rather than skewed. We also find some distributions to be destabilizing: there is a strong incentive to form coalitions to repudiate the incumbent and re-issue new currency when the distribution is skewed, calling for a "coalition-proof" refinement. While our focus on distribution-dependence and coalition-proofness is theoretically novel on its own, our model also provides constructive advice to future designers of cryptocurrency.

3. Clinging Onto the Cliff: A Model of Financial Misconduct, with AJ Chen and Fernando Zapatero

We propose a novel pressure-based model of financial misconduct. We interpret the robust empirical findings of a high "success rate of crime" as evidence of skewness in the payoff of white-collar crime. Our model proposes skewness-seeking as a key driver of financial misconduct, as opposed to the conventional analysis that postulates (an emprically elusive) positive expected payoffs associated to crime. In our model, criminal motives arise as optimal responses to a “tunnel vision” that engrosses firm managers, whereby the intense pressure to attain the focused goal triggers strong demand for negatively skewed bets in the form of crime. We show results that are consistent with the notion of a “slippery slope to crime" that is finding growing support in the literature as well as in practitioner accounts. Comparative static analyses on the model also reveal several empirical implications -for example, a “pecking order of crime" indicating that serious infringements will only follow the depletion of the more preferred (and possibly prevalent) option of milder incursions of law, e.g., minor violations of financial reporting standards- many of which find empirical support in the literature. 

4. Two Reasons to Covet Social Status: A Model of Status-Driven Choice, with Fernando Zapatero

The status literature has suggested two reasons why social status may be desirable. First, higher status gives a sense of advancement vis-a-vis peers -other agents in a reference group. Second, similar to a firm's investment, higher status can improve the individual's wealth prospects in the future. We study the optimal strategy of an individual who maximizes multiperiod utility from consumption and from status (through the previous two channels). We find many realistic features that are consistent with empirical evidence, for example, a preference to be the "big fish in a small pond". The model also generates a single-period utility function that reminisces Friedman and Savage (1948).

5. Disaster in My Heart: A Visceral Explanation for Asset Pricing Puzzles 

Best Paper Award: AFBC PhD Forum 2018, Best Dissertation Award: KAFA 2018

I introduce the notion of 'dis-utility shocks': rare but large negative idiosyncratic deviations from the consumption-implied utility level. Dis-utility shocks represent an unmistakable aspect of human life - that it can sometimes be unusually painful. I propose to adjoin dis-utility shocks to a standard consumption-based asset pricing model and develop a method to compute their impact on asset prices numerically. Despite their idiosyncratic nature, calibration results show that they are priced. Moreover, contrary to many other asset pricing models, I embed dis-utility shocks in a parsimonious manner - in just three parameters - yet show that they help address many of the standard asset pricing puzzles.