I propose that the nonfinancial component of financial firms' assets, in particular the growth opportunities associated with business operations, drives most of the variation in their equity valuation. I document this fact for a large class of intermediaries: life insurance companies. In particular, I decompose insurers' market equity returns into net financial asset returns and net business asset returns and show that these two components have very different risk exposures and are negatively correlated outside of the 2008-2009 financial crisis. The variation in life insurers' net business asset returns drives 81% of the aggregate time series variation and 100% of the cross-sectional variation in their market equity returns. For this reason, the current intense regulation on life insurers' net financial assets may be insufficient as a great deal of risk is derived from their net business assets which are comparatively under-regulated.

This study investigates whether increased diversification in insurance-linked securities (ILS) hedge funds improves their performance and identifies the underlying mechanisms. We develop a new measure of diversification based on cross-class return dispersion, which captures ILS funds' flexibility in adjusting their catastrophe risk exposure, financial market timing, and factor selection. Our findings show that more diversified ILS funds achieve higher returns without increasing risk, with performance driven primarily by factor returns rather than excess returns. These funds also outperform their counterparts during catastrophe market downturns by dynamically reallocating risk and exploiting market timing opportunities. An event study reveals that these funds actively manage their risk exposure before negative shocks, but adopt a risk-averse stance afterward, potentially sacrificing gains. Our results reconcile the conflicting findings in the literature, demonstrating that strategic and dynamic diversification enhances ILS fund performance through factor-driven mechanisms, rather than excessive specialization or passive risk allocation.

We investigate how niche assets (e.g., catastrophe bonds) affect fixed-income hedge fund portfolio performance. Using a portfolio choice model with adjustable weights for both niche and existing assets, we demonstrate that niche assets provide diversification or substitution benefits depending on time-varying correlations and relative Sharpe ratios between the asset types. We further find that diversification and substitution benefits are equally important when incorporating niche assets but are often neglected. We propose improving fixed-income funds by dynamically adjusting the portfolio allocations of niche and existing assets according to market conditions or including niche strategy funds in a fund-of-hedge-funds approach.

This paper investigates the strategic timing and structuring of share disposals by corporate insiders. We develop a model in which heterogeneous outsider reaction speeds to positive information generate temporary periods of high liquidity and price appreciation as the market gradually incorporates the information. The model predicts that insiders, possessing superior knowledge of fundamental value, sell into these liquidity surges while strategically using option exercises to minimize their market impact. Using comprehensive U.S. insider transaction data from 1996 to 2024, we find strong empirical support for three key predictions: (1) the standard negative liquidity-return relationship reverses around insider sales, with high liquidity predicting higher subsequent returns; (2) insiders are significantly more likely to use the ``exercise-and-sell" method following sharp increases in ex-ante returns; and (3) this strategic timing is more pronounced among executive officers than directors, a finding further supported with causal evidence from role changes. Our results reveal a new channel of informed trading based on interpreting public information and highlight important limitations of current regulatory frameworks such as Rule 10b5-1.

Publications

Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical, or even countercyclical. This paper reviews the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). We provide a comprehensive set of capital reallocation stylized facts for the US, and an illustrative model of capital reallocation in equilibrium. We relate capital reallocation to the broader literatures on business cycles with financial frictions, and on resource misallocation and aggregate productivity. Finally, we provide directions for future research.

We study the relationship between entrepreneurs' human capital and their firms' outcomes, and its consequences for wealth inequality. High human capital enables entrepreneurs to earlier obtain financing from outside investors. This early financing enables entrepreneurs to grow their firms faster. We show that firms realize higher growth rates when entrepreneurs sell the firms sooner. For young firms, an additional one percent of firm ownership sold is associated with a fifteen percent increase in firms' growth rates. However, entrepreneurs who have earlier access to external financing tend to maintain larger ownership of their firms, leading to a lower growth rate despite high initial firm value.