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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Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig
December 4, 2017

The convenience yield that foreign investors derive from holding U.S. Treasurys causes a failure of Covered Interest Rate Parity by driving a wedge between the yield on the foreign bonds and the currency-hedged yield on...

Rohan Douglas, Antje Berndt, Darrell Duffie, Mark Ferguson
November 25, 2017

We measure credit risk premia, meaning the price for bearing corporate default risk in excess of expected default losses, using Markit CDS and Moody’s Analytics EDF data. We find dramatic variation over time in credit...

Charles M. C. Lee, Stephen Teng Sun, Rongfei Wang, Ran Zhang
October 23, 2017

This paper finds evidence of return predictability across technology-linked firms.  Employing a classic measure of technological closeness between firms, we show that the returns of technology-linked firms have strong predictive power for focal firms’ returns. ...

Barney Hartman-Glaser, Benjamin Hébert
October 3, 2017

We introduce a model to explain the widespread failure to index contracts to aggregate indices, despite the apparent risk-sharing benefits of indexation. Our model features these benefits, but demonstrates that asymmetric information about the ability...

Hanno Lustig, Andreas Stathopoulos, Adrien Verdelhan
October 2017

Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases, because the local currency term premia offset the currency risk premia. The time series predictability of...

Arvind Krishnamurthy, Stefan Nagel, Annette Vissing-Jorgensen
September 15, 2017

We evaluate the effects of three ECB policies (the Securities Markets Programme, the Outright Monetary Transactions, and the Long-Term Refinancing Operations) on government bond yields.  We use a novel Kalman-filter augmented event-study approach and yields...

Charles M. C. Lee, Yuanyu Qu, Tao Shen
September 9, 2017

Using a comprehensive sample of reverse merger (RM) transactions, we examine the effects of China’s IPO regulations on the prices and returns of its publicly listed stocks. During 2007-2015, unlisted Chinese firms paid an average...

Benjamin Hébert, Michael Woodford
September 5, 2017

Revise and Re-submit, Econometrica

We propose a new principle for measuring the cost of information structures in rational inattention problems, based on the cost of generating the information used to make a decision through a dynamic...

Darrell Duffie, Leif Andersen, Yang Song
August 1, 2017

We demonstrate that the funding value adjustments (FVAs) of major dealers are debt-overhang costs to their shareholders. In order to maximize shareholder value, dealer quotations therefore adjust for FVAs. Contrary to current valuation practice, FVAs...

Arvind Krishnamurthy, Tyler Muir
August 2017

We study the behavior of credit and output across a financial crisis cycle using information from credit spreads. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that...

Shai Bernstein, Josh Lerner, Filippo Mezzanotti
July 18, 2017

Revise and Resubmit at Review of Financial Studies

Do private equity firms contribute to financial fragility during economic crises? We find that during the 2008 financial crisis, PE-backed companies increased investments relative to their peers,...

Shai Bernstein, Timothy James McQuade, Richard R. Townsend
July 7, 2017

Do household wealth shocks affect employee output? We examine this question through the lens of technological innovation, by comparing employees that worked at the same firm and lived in the same metropolitan area, but experienced...

Anat R. Admati
June 26, 2017

Financialized corporate governance as commonly practiced causes significant inefficiencies and harm. Corporations and governments routinely fail to design and enforce rules that reduce the opacity of corporations, create effective commitments that prevent harm, and ensure...

Lin William Cong, Steven Grenadier, Yunzhi Hu
June 12, 2017

We model a dynamic economy with strategic complementarity among investors and endogenous government interventions that mitigate coordination failures. We establish equilibrium existence and uniqueness, and show that one intervention can affect another through altering the...

Charles M. C. Lee, Eric C. So, Charles C. Y. Wang
June 3, 2017

We argue, from an extensive literature review, that in the vast majority of research settings, biases in alternative expected-return proxies (ERPs) are irrelevant. Therefore, in most settings, the choice between alternative ERPs should be based...

Jonathan B. Berk, Jules H. van Binsbergen
June 1, 2017

We study a market for a skill that is in short supply and high demand, where the presence of charlatans (professionals who sell a service that they do not deliver on) is an equilibrium outcome....

Andrea L. Eisdeldt, Hanno Lustig, Lei Zhang
May 23, 2017

We develop a dynamic equilibrium model of complex asset markets with endogenous entry and exit in which the investment technology of investors with more expertise is subject to less asset-specific risk. The joint equilibrium distribution...

Shai Bernstein, Emanuele Colonnelli, Xavier Giroud, Benjamin Iverson
May 5, 2017

Revise and Resubmit at Journal of Financial Economics

How do different bankruptcy approaches affect the local economy? Using U.S. Census microdata, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We...

Hanno Lustig, Ralph S.J. Koijen, Stijn Van Nieuwerburgh
April 24, 2017

We show that bond factors, which predict future U.S. economic activity at business cycle horizons, are priced in the cross-section of U.S. stock returns. High book-to-market stocks have larger exposures to these bond factors than...