Working Papers

These papers are working drafts of research which often appear in final form in academic journals. The published versions may differ from the working versions provided here.

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Jung Ho Choi, Brandon Gipper, Sara Malik
November 2019

We examine whether financial reporting quality influences employee turnover and wages using employer-employee matched data in the U.S. We find that low financial reporting quality is associated with high employee turnover risk, so workers demand...

Benjamin Hébert, Michael Woodford
October 21, 2019

Decisions take time, and the time taken to reach a decision is likely to be informative about the cost of more precise judgments. We formalize this insight in the context of a dynamic rational inattention...

Mark J. Garmaise, Yaron Levi, Hanno Lustig
October 17, 2019

We show that household consumption displays excess sensitivity to salient macro-economic news. When the announced local unemployment rate reaches a 12-month maximum, local consumers in that area reduce discretionary spending by 2% relative to consumers...

Joshua D. Rauh, Ryan Shyu
October 8, 2019

Drawing on the universe of California income tax filings and the variation imposed by a 2012 tax increase of up to 3 percentage points for high-income households, we present new findings about the effects of...

Charles M. C. Lee, Yuanyu Qu, Tao Shen
October 2019

We study firms that go public through reverse mergers (RMs) versus initial public offerings (IPOs) in China. Using a manually assembled data set, we show...

Benjamin Hébert, Jennifer La'O...
September 26, 2019

This paper analyzes equilibria and efficiency in a class of economies (large games) that feature incomplete information, strategic interaction, and endogenous information acquisition, with beauty contests as a leading example. We adopt the rational inattention...

Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig
September 24, 2019

US monetary policy has an outsized impact on the world economy, a phenomenon that Rey (2013) dubs the global financial cycle. Changes in the US dollar also have an outsized impact on the world economy,...

Eduardo Davila, Benjamin Hébert
September 2019

We study optimal corporate taxation when firms are financially constrained. We describe a corporate taxation principle: taxes should be levied on unconstrained firms, which value resources inside the firm less than constrained firms. Under complete...

Darrell Duffie, Samuel Antill
August 1, 2019

In our modeled setting, we show that the now-common practice of size discovery detracts from overall Financial market efficiency. A continually operating exchange uses double auctions to discover prices and clear markets. At each of...

Charles M. C. Lee, Christina Zhu
August 2019

We use trade-level data to examine the role of actively managed funds (AMFs) in earnings news dissemination.   AMFs trade 170 percent more on earnings announcement (EA) days than on non-EA days.  Abnormal AMF participation is...

Charles M. C. Lee, Yanruo Wang, Qinlin Zhong
August 2019

We develop a Loan Portfolio Risk (LPR) variable that measures time-varying volatility in default risk for a portfolio of bank loans.  An Equity-to-LPR ratio (ELPR) is incrementally important in predicting bank failure up to five...

Antonio Coppola, Matteo Maggiori, Brent Neiman, Jesse Schreger
August 2019

Cross-border capital flows are often opaque. Global firms commonly finance themselves through foreign subsidiaries, including shell companies in tax havens, making it difficult to observe the true economic linkages between investors and borrowers around the...

Wenxin Du, Benjamin Hébert, Amy Wang
June 18, 2019

Violations of no-arbitrage conditions measure the shadow cost of constraints on intermediaries, and the risk that these constraints tighten is priced. We demonstrate in an intermediary-based asset pricing model that violations of no-arbitrage such as...

Andrew Lilley, Matteo Maggiori, Brent Neiman, Jesse Schreger
June 2019

The failure to find fundamentals that co-move with exchange rates or forecasting models with even mild predictive power – facts broadly referred to as “exchange rate disconnect” – stands among the most disappointing, but robust,...

Claudia Robles-Garcia
May 30, 2019

Mortgage brokers acting as expert advisors for households often receive commission payments from lenders. This paper empirically analyzes the effects on welfare and market structure of regulations restricting this form of broker compensation. Loan-level data...

Charles M. C. Lee, Edward M. Watts
May 9, 2019

This study examines how an increase in tick size affects algorithmic trading (AT), fundamental information acquisition (FIA), and the price discovery process around earnings announcements (EAs). Leveraging the SEC’s randomized “Tick Size Pilot” experiment, we...

Anat R. Admati, Martin F. Hellwig
April 30, 2019

We take issue with claims that the funding mix of banks, which makes them fragile and crisis-prone, is efficient because it reflects special liquidity benefits of bank debt. Even aside from neglecting the systemic damage...

Juliane Begenau, Saki Bigio, Jeremy Majerovitz
April 2019

This paper presents five facts on the behavior of U.S. banks between 2007 and 2015 that impose useful restrictions on the formulation of a bank problem. (1) Market to book leverage ratio diverged significantly during...

Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig
March 19, 2019

We develop a theory that links the U.S. dollar’s valuation in FX markets to foreign investors’ demand for U.S. safe assets. When the convenience yield that foreign investors derive from holding U.S. safe assets increases,...