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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Darrell Duffie, Samuel Antill
August 6, 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...

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...

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,...

Wenxin Du, Benjamin Hébert, Amy Wang
March 14, 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...

Juliane Begenau
January 14, 2019

Accepted at the Journal of Financial Economics

This paper develops a quantitative dynamic general equilibrium model in which households’ preferences for safe and liquid assets constitute a violation of Modigliani and Miller. I show that...

Barney Hartman-Glaser, Benjamin Hébert
January 6, 2019

Revise and Re-submit, Journal of Finance

We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private...

Eduardo Davila, Benjamin Hébert
January 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...

Anat R. Admati
January 2019

A healthy and stable financial system enables efficient resource allocation and risk sharing. A reckless and distorted system, however, causes enormous harm. The cycles of boom, bust, and crisis that repeatedly plague banking and finance...

Claudia Robles-Garcia, NIkos Artavanis, Daniel Paravisini, Amit Seru, Margarita Tsoutsoura

This paper develops a new approach to isolate and quantify the extent to which deposit withdrawals are due to liquidity, exposure to policy risk, or expectations about how other depositors will behave. We use high...

Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig
December 4, 2018

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,...

Benjamin Hébert, Michael Woodford
November 14, 2018

Revise and Resubmit, Econometrica

We propose a new approach to modeling the cost of information structures in rational inattention problems: the “neighborhood-based” cost functions. These cost functions have two properties that we view as desirable:...

Benjamin Hébert, Michael Woodford
November 14, 2018

Revise and Re-submit, Econometrica

We derive, from first principles, continuous time models of rational inattention. We begin by describing dynamic discrete time models, and stating conditions on the cost of information in such models. Using these...

Shai Bernstein, Rebecca Diamond, Timothy James McQuade, Beatriz Pousada
November 6, 2018

We characterize the contribution of immigrants to US innovation, both through their direct productivity as well as through their indirect spillover effects on their native collaborators. To do so, we link patent records to a...

Charles M. C. Lee, Edward M. Watts
October 9, 2018

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...

Mark Egan, Gregor Matvos, Amit Seru
October 2018

We examine whether firms have an informational advantage in selecting arbitrators in consumer arbitration, and the impact of the arbitrator selection process on outcomes. We collect a novel data set containing roughly 9,000 arbitration cases...

Greg Buchak, Gregor Matvos, Tomas Piskorski, Amit Seru
October 2018

We study which types of activities migrate to the shadow banking sector, why migration occurs in some sectors, and not others, and the quantitative importance of this migration. We explore this question in the $10...

Darrell Duffie
September 10, 2018

This note explains a new type of auction based on an existing derivatives risk-management technique known as “compression.” A compression auction can be used to convert centrally cleared contracts on an underlying benchmark, such as...

Juliane Begenau, Tim Landvoigt
September 2018

WFA Award for Best Paper on Financial Institutions

How does the shadow banking system respond to changes in capital regulation of commercial banks? We propose a tractable quantitative general equilibrium model with regulated and unregulated banks...