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.

SSRN Research Paper Series

The Social Science Research Network’s Research Paper Series includes working papers produced by Stanford GSB the Rock Center.

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Interest Rate Risk in Banking

Arvind Krishnamurthy, Peter M. DeMarzo, Stefan Nagel
September2024

We develop a theoretical and empirical framework to estimate bank franchise value. In contrast to regulatory guidance and some existing models, we show that sticky deposits combined with low deposit rate betas do not imply a negative duration for…

Can U.S. Treasury Markets Add and Subtract?

Roberto GĂłmez-Cram, Howard Kung, Hanno Lustig
August2024

The CBO cost releases of legislative proposals contain valuable news about surpluses priced in by Treasury investors. Using daily event windows, we find that cost releases with large negative cash flows lowered Treasury valuations by more than 20…

Government Debt in Mature Economies. Safe or Risky?

Roberto GĂłmez-Cram, Howard Kung, Hanno Lustig
August2024

Governments and central banks can protect either taxpayers or bondholders from government spending shocks. When they choose to insulate taxpayers, government bond yields need to increase in response to unfunded fiscal expansions as the government…

Book Value Risk Management of Banks: Limited Hedging, HTM Accounting, and Rising Interest Rates

Joao Granja, Erica Xuewei Jiang, Gregor Matvos, Tomasz Piskorski, Amit Seru
April2024

In the face of rising interest rates in 2022, banks mitigated interest rate exposure of the accounting value of their assets but left the vast majority of their long-duration assets exposed to interest rate risk. Data from call reports and SEC…

Noisy Experts? Discretion in Regulation

Sumit Agarwal, Bernardo Morais, Amit Seru, Kelly Shue
April2024

While reliance on human discretion is a pervasive feature of institutional design, human discretion can also introduce costly noise (Kahneman, Sibony, and Sunstein 2021). We evaluate the consequences, determinants, and trade-offs associated with…

Liquidity, Debt Denomination, and Currency Dominance

Antonio Coppola, Arvind Krishnamurthy, Chenzi Xu
February2024

We provide a liquidity-based theory for the dominant use of the US dollar as the unit of denomination in global debt contracts. Firms need to trade their revenue streams for the assets required to extinguish their debt obligations. When asset…

The Secular Decline of Bank Balance Sheet Lending

Greg Buchak, Gregor Matvos, Tomasz Piskorski, Amit Seru
February2024

The traditional model of bank-led financial intermediation, where banks issue demandable deposits to savers and make informationally sensitive loans to borrowers, has seen a dramatic decline since 1970s. Instead, private credit is increasingly…

Convenience Yields and Exchange Rate Puzzles

Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig
January12024

We introduce safe asset demand for dollar-denominated bonds into a tractable incomplete market model of exchange rates. The convenience yield on dollar bonds enters as a stochastic wedge in the Euler equations for exchange rate determination.…

EXIM’s Exit: The Real Effects of Trade Financing by Export Credit Agencies

Poorya Kabir, Adrien Matray, Karsten MĂĽller, Chenzi Xu
January2024

We study the role of export credit agencies — the predominant tool of industrial policy — on firm behavior by using the effective shutdown of the Export-Import Bank of the United States (EXIM) from 2015-2019 as a natural experiment. We show that…

A Framework for Geoeconomics

Christopher Clayton, Matteo Maggiori, Jesse Schreger
January2024

Governments use their countries’ economic strength from existing financial and trade relationships to achieve geopolitical and economic goals. We refer to this practice as geoeconomics. We build a framework based on three core ingredients:…

Information-Based Pricing in Specialized Lending

Zhiguo He, Jing Huang, Cecilia Parlatore, Kristian Blickle
December2023

We study specialized lending in a credit market competition model with private information. Two banks, equipped with similar data processing systems, possess “general” signals regarding the borrower’s quality. However, the specialized bank gains…

Credit Cycles, Firms, and the Labor Market

Michael Blank, Omeed Maghzian
November2023

We use administrative data from the U.S. Census Bureau to estimate the causal effects of loose credit conditions on firm employment and worker earnings. To obtain quasi-random variation in firms’ exposure to credit booms, we exploit the…

The Digital Banking Revolution: Effects on Competition and Stability

Naz Koont
November2023

How does the digital revolution affect bank competition and financial stability? I use hand- collected data and a novel identification strategy to show that after adopting digital platforms, banks branchlessly operate in more markets,…

Investing in Lending Technology: IT Spending in Banking

Zhiguo He, Sheila Jiang, Douglas Xu, Xiao Yin
October2023

Banks’ lending technology hinges on their handling of soft and hard information in dealing with different types of credit demand. Through assembling a novel dataset on banks’ investment in information technologies (IT), this paper provides…

What Drives Variation in the U.S. Debt/Output Ratio? The Dogs that Didn’t Bark

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, Mindy Z. Xiaolan
October2023

A higher U.S. government debt/output ratio does not forecast higher surpluses or lower returns on Treasurys in the future. Neither future cash flows nor discount rates account for the variation in the current debt/output ratio. The market…

Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?

Erica Xuewei Jiang, Gregor Matvos, Tomasz Piskorski, Amit Seru
September2023

We develop an empirical methodology and conceptual framework to analyze the effect of rising interest rates on the value of U.S. bank assets and bank stability. We mark-to-market losses on banks’ assets due to interest rate increases from Q1 2022…

Standardization and Innovation in Venture Capital Contracting: Evidence from Startup Company Charters

Robert P. Bartlett
September2023

This study examines the standardization of venture capital (VC) contracts since the release of the National Venture Capital Association (NVCA) model charter in 2003. Using nearly 5,000 charters issued in connection with a startup’s Series A…

The Zero-Beta Rate

Sebastian Di Tella, Benjamin HĂ©bert, Pablo Kurlat, Qitong Wang
August142023

We use equity returns to construct a time-varying measure of the interest rate that we call the zero-beta rate: the expected return of a stock portfolio orthogonal to the stochastic discount factor. The zero-beta rate is high and volatile. In…

What Gets Measured Gets Managed: Investment and the Cost of Capital

Zhiguo He, Guanmin Liao, Baolian Wang
August2023

We study the impact of government-led incentive systems by examining a staggered reform in the Chinese state-owned enterprise (SOE) performance evaluation policy. To improve capital allocative efficiency, starting in 2010, regulators evaluating…

The Impact of Money in Politics on Labor and Capital: Evidence from Citizens United v. FEC

Pat Akey, Tania Babina, Greg Buchak, Ana-Maria Tenekedjieva
July2023

We examine whether corporate money in politics benefits or hurts labor using the 2010 Supreme Court ruling Citizens United, which rendered bans on political election spending unconstitutional. In difference-in-difference analyses, affected states…