Working Papers

We test for a ‘hot hand’ (i.e., short-term streakiness in performance) in Major League Baseball using panel data. We find strong evidence for its existence in all ten statistical categories we consider. The magnitudes are significant; being…

We examine the pervasive view that “equity is expensive,” which leads to claims that high capital requirements are costly for society and would affect credit markets adversely. We find that arguments made to support this view are fallacious,…

We study the nature of deflation risk by extracting the objective distribution of inflation from the market prices of inflation swaps and options. We find that the market expects inflation to average about 2.5 percent over the next 30 years.…

We propose a model of firm volatility based on customer-supplier connectedness. We assume that customers’ growth rate shocks influence the growth rates of their suppliers, larger suppliers have more customers, and the strength of a customer-…

Supplementing the discussion in our book The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It, this paper examines the plausibility and relevance of claims in banking theory that fragility in bank funding is useful…

The financial crisis of 2007–09 has spurred significant ongoing changes in the “pipes and valves” through which cash and risk flow through the center of our financial system. These include adjustments to the forms of lender-of-last-…

We study the sources of match-specific value at large American law firms by analyzing how graduates of law schools group into law firms. We measure the degree to which lawyers from certain schools concentrate within firms and then analyze how…

We propose a redesign of sovereign Credit Default Swaps (CDS). Under our proposal, a notional CDS position of €100 can be settled by the delivery of whatever package of instruments a sovereign gives in exchange for legacy bonds with a face value…

We analyze shareholders’ incentives to change the leverage of a firm that has already borrowed substantially. As a result of debt overhang, shareholders have incentives to resist reductions in leverage that make the remaining debt safer. This…

This submission discusses implications for the quality and safety of financial markets of proposed rules implementing the market-making provisions of section 13 of the Bank Holding Company Act, commonly known as the “Volcker Rule.” The proposed…

We measure the repo funding extended by money market funds (MMF) and securities lenders to the shadow banking system, including quantities, haircuts, and repo rates by type of underlying collateral. We find that repo played only a small role in…

This paper explores the impact of investor flows and financial market conditions on returns in crude-oil futures markets. I begin with a review of the economic mechanisms by which informational frictions and the associated speculative…

I am grateful for comments from Viral Acharya, Lewis Alexander, Niki Anderson, Peter Axilrod, Dick Berner, Markus Brunnermeier, Stacey Coleman, Rob Engle, Mike Fishman, Mark Flood, John Gidman, Tobi Guldimann, Anil Kashyap, John Khambu, Arvind…

We show whether central clearing of a particular class of derivatives lowers counterparty risk. For plausible cases, adding a central clearing counterparty (CCP) for a class of derivatives such as credit default swaps reduces netting…

While it is recognized that the high degree of leverage used by financial institutions creates systemic risks and other negative externalities, many argue that financial institutions must rely on extensive debt financing since equity financing is…

The non-tradability of human capital is often cited for the failure of traditional asset pricing theory to explain agents’ portfolio holdings. In this paper we argue that the opposite might be true | traditional models might not be able to…

In the wake of the recent financial crisis, over-the-counter (OTC) derivatives have been blamed for increasing systemic risk. Although OTC derivatives were not a central cause of the crisis, the complexity and limited transparency of the market…

Since World War II, direct stock ownership by households has largely been replaced by indirect stock ownership by financial institutions. We argue that tax policy is the driving force. Using long time-series from eight countries, we show…

We calculate learning rates when agents are informed through both public and private observation of other agents actions. We provide an explicit solution for the evolution of the distribution of posterior beliefs. When the private learning…

We document that the observed persistence amongst the worst performing actively managed mutual funds is attributable to funds that have performed poorly both in the current and prior year. We demonstrate that this persistence results from an…