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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Shai Bernstein, Timothy James McQuade, Richard R. Townsend
March 18, 2018

We investigate how the deterioration of household balance sheets affects worker productivity, and whether such effects mitigate or amplify economic downturns. To do so, we compare the output of innovative workers who were employed at...

Shai Bernstein, Emanuele Colonnelli, Davide Malacrino, Timothy James McQuade
March 18, 2018

Firm entry plays an important role in the amplification and propagation of aggregate economic shocks. In this paper, we study the characteristics of the actual individuals who drive firm entry response to aggregate shocks, the...

Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig
March 15, 2018

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...

Darrell Duffie, Leif Andersen, Yang Song
March 13, 2018

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. Our case examples include interest-rate swap...

Chris Hennessy, Akitada Kasahara, Ilya A. Strebulaev
March 12, 2018

Absent theoretical guidance, empiricists have been forced to rely upon numerical comparative statics from constant tax rate models in formulating testable implications of tradeoff theory in the context of natural experiments. We fill the theoretical...

Darrell Duffie, Piotr Dworczak
March 2018

Recent scandals over the manipulation of LIBOR, foreign exchange benchmarks, and other financial benchmarks have spurred policy discussions over their appropriate design. We characterize the optimal fixing of a benchmark as an estimator of a...

Arvind Krishnamurthy, Viral V. Archarya
February 28, 2018

We examine theoretically the role of reserves management and macro-prudential capital controls as ex-post and ex-ante safeguards, respectively, against sudden stops, and argue that these measures are complements rather than substitutes. Absent capital controls, reserves...

Aleksandar Andonov, Joshua D. Rauh
February 2018

Institutional investors rely on past performance in setting future return expectations, and these extrapolative expectations affect their target asset allocations. Drawing on newly-required disclosures for U.S. public pension funds, a group that manages approximately $4...

Shai Bernstein, Josh Lerner, Filippo Mezzanotti
January 3, 2018

Does private equity (PE) contribute to financial fragility during economic crises? Academics and regulators have worried that the proliferation of poorly structured transactions during booms may increase the vulnerability of the economy to downturns. During...

Barney Hartman-Glaser, Benjamin Hébert
December 29, 2017

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 information about the ability of...

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...

Anat R. Admati, Peter M. DeMarzo, Martin F. Hellwig, Paul Pfleiderer
November 2017

Firms’ inability to commit to future funding choices has profound consequences for capital structure dynamics. With debt in place, shareholders pervasively resist leverage reductions no matter how much such reductions may enhance firm value. Shareholders...

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. ...

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...

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...

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...