We analyze optimal carbon pricing under financial constraints and endogenous climate-related transition and physical costs. The socially optimal emissions tax may be above or below a Pigouvian benchmark, depending on the strength of physical climate impacts on pledgeable resources. We derive necessary conditions for emissions taxes alone to implement a constrained-efficient allocation, and show a cap-and-trade

Identifying firms’ bond-market-specific economic links through credit-rating comovement of their corporate bonds, a long-short strategy for stocks based on these links generates a risk-adjusted alpha of 0.45% per month, which cannot be explained by existing economic links in the literature. Market segmentation between the equity and bond markets appears to be the underlying mechanism: (i) The cross-return

We propose a statistical methodology for jointly estimating the pricing kernel and conditional physical return densities from option prices. Pricing kernel estimates show that negative stock market returns are significantly more painful to investors in low-volatility periods. Density estimates reflect a significantly positive risk–return trade-off, suggest that Martin’s (2017) lower bound on the equity

We develop a market-based methodology to assess banks’ resilience to climate-related risks and study the climate-related risk exposure of large global banks. We introduce a new measure, CRISK, which is the expected capital shortfall of a bank in a climate stress scenario. To estimate CRISK, we construct climate risk factors and dynamically measure banks’ stock return sensitivity (that is, climate beta)

We examine the impact of fintech on firm labor demand, job turnover, and firm performance. Occupations with higher exposure to fintech experience a net decline in job postings and employment, though both complementary and substitutive effects emerge across different sectors. Fintech blurs traditional industry boundaries, creating demand for workers with a combination of finance and technology skills

“Buy Now, Pay Later” (BNPL) is a key innovation in consumer payments. It bundles the sale of a product with a subsidized loan, effectively offering lower prices to low-creditworthiness customers. BNPL thereby allows merchants to price-discriminate among customers with different willingness-to-pay. Consistent with a price-discrimination mechanism, we show that BNPL increases sales by 20%, driven by

Dark pools can restrict access for specific trader types. We compare execution outcomes between dark pools that restrict high frequency trader access and those that do not. We find that trades executed in dark pools with more access restrictions have less order flow information leakage, adverse selection risk and post-trade order imbalances than trades in less restricted pools. Evidence from exogenous

We analyze interactions between fiscal and monetary stimulus in a new Keynesian model with nominal mortgage debt that can be inflated away. Redistributive transfers are most impactful when followed by a temporary deviation from inflation-targeting monetary policy. Unlike other fiscal policies, redistribution causes inflation even in the absence of long-run debt sustainability problems, and inflating

We examine the survival prospects, employment profiles, and patient outcomes at private equity (PE)-acquired hospitals. Target hospitals maintain their survival rates while significantly reducing employment and wage expenditures. The number of core medical workers drops temporarily, but returns to its pre-acquisition level in the long run. However, administrative job and wage cuts persist over the

I show that prices impact analyst cash flow expectations and argue this impact can partially reconcile subjective beliefs data with asset pricing models in which investors have rational expectations and discount rate variation drives prices. Previous work argues that correlations of biased analyst cash flow expectations with prices and future returns contradict rational models and imply biased investor

This paper studies banks’ investment in risk management human capital following the Global Financial Crisis and the advent of stress testing. Our results suggest that ‘Too Big to Fail’ distortions may have weakened large banks’ incentive to invest in risk management talent. Stress testing, which focuses on the largest banks, spurred demand for skilled quantitative risk managers, but only narrowly in

Using global mutual fund and American Depositary Receipt (ADR) data, we test if funds strategically trade cross-listed firms’ equity shares in the most liquid trading location. We find that especially funds that score high on traditional skill measures exhibit a liquidity-based trading venue preference. We identify an informed trading motive as the most likely driver for such behaviour rather than

For variables with a term structure, the standard difference-in-differences (DiD) model is predisposed toward misspecification, even under random assignment, because of heterogeneity over the maturity spectrum and imperfect matching between treated and control units. Estimated treatment effects that are false, biased, or hard to interpret become a concern. Neither unit fixed effects nor standard term-structure

We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels — risky firms just above the IG cutoff — enjoyed subsidized bond financing in 2009–19. This effect is driven by Fed purchases of securities inducing long-duration IG-focused investors to rebalance their portfolios towards higher-yielding IG bonds.

How do workplace social connections shape everyday entrepreneurship? Using comprehensive data on millions of American workers across the economy, I find three key patterns. First, entrepreneurial coworkers inspire and teach entrepreneurship: individuals are more likely to become entrepreneurs after working with coworkers who previously led young businesses. Second, these effects predominantly occur

Banks use trading as a vehicle to take risk. Using high-frequency regulatory data, we estimate the sensitivity of weekly bank trading profits to aggregate equity, fixed-income, credit, currency, and commodity risk factors. Our estimates imply that U.S. banks had large trading exposures to equity market risk before the Volcker Rule, which they curtailed afterwards. Credit and currency risk exposures

Using financial account data linking small businesses to their owner households, we examine how business owners’ consumption responded to changes in business revenues during the COVID-19 crisis. In the first two months following the National Emergency, business revenues declined by 40 percent, largely driven by national factors rather than local infection rates or policies. However, the pass-through

Frequent, yet uninformed, market timing recommendations by a financial advisory firm generate significant flows for Chilean pension funds. These flows induce substantial changes in the Chilean foreign exchange rate due to the funds’ high allocation to international securities. Local banks provide liquidity to pension funds in the spot market and their hedging transactions propagate the demand fluctuations

We study the aggregate consequences of dynamic lending relationships in a model of heterogeneous banks facing financial frictions. We estimate the model’s loan demand system on administrative loan-level data: the market power implied by the estimated strength and persistence of relationships yields a long run reduction in credit of 5.9%. Relationships amplify the negative real effects of credit supply

We analyze the trade-offs of having intermediaries originate government-sponsored enterprise (GSE) mortgages using proprietary GSE data. We first find evidence of lenders pricing for observable and unobservable default risk independently of the GSEs. We then develop and estimate a model of competitive lending in which lenders have skin-in-the-game and conduct additional screening beyond the GSEs’ criteria

This paper investigates how firms’ pollution incentives are influenced by their ability to divest polluted assets. My empirical setting is a major reform that exempts purchasers from liability for past contamination. Using a difference-in-differences framework, I find that the reform reduces toxic emissions, lowers bankruptcy risk, and increases firm value. Cross-sectional tests show that the decline

We study block trades in the corporate bond market, where dealers buy or sell blocks from initiating customers and offset their positions with receiving investors. Our findings indicate that while receivers benefit from trading cost savings, they primarily bear adverse selection costs and experience worse outcomes when informed trading is prevalent. Mandatory trade reporting improves receiver outcomes

We study the impact of global volatility on the equity portfolio flows of institutional investors worldwide. Aggregate equity allocations of institutional investors decrease during periods of high volatility, both in developed and, even more strongly, in emerging markets. Our granular portfolio-level data allows us to uncover disaggregated investor responses that are an order of magnitude larger than

Using a regime change in the commercialization of university innovation in 1980 that strongly increased university incentives to patent and license discoveries, we document that an increase in the supply of commercializable innovation attracts venture capital investment to the region. The Bayh-Dole Act shifted ownership of intellectual property stemming from federally-funded research from the federal

We exploit the 2020 Treasury market shock to analyze how external and internal constraints impact arbitrageurs. Using regulatory filings, we find that hedge funds reduced arbitrage activities and increased cash holdings, despite stable credit and low contemporaneous redemptions. Creditors’ regulatory and liquidity constraints were not propagated to hedge funds through repo—Treasury arbitrageurs’ predominant

We study how information disclosure concerns shape the choice of limited partners (LPs) by venture capitalists (VCs). Late-2002 court rulings prevented public LPs from providing confidentiality to investment managers. The best-performing VCs, but not other managers, responded by excluding public LPs from their new funds. Lost access reduced public LP returns by $1.6 billion relative to $14 billion

This paper studies the role of trust in incumbent lenders (banks) as an entry barrier to emerging FinTech lenders in credit markets. The empirical setting exploits the outbreak of the Wells Fargo scandal as a negative shock to borrowers’ trust in banks. Using a difference-in-differences framework, I find that increased exposure to the Wells Fargo scandal leads to an increase in the probability of borrowers

When lenders screen borrowers using a menu, they generate a contractual externality by rendering the composition of their competitors’ borrowers worse. Using data from the UK mortgage market and a structural model of screening with endogenous menus, this paper quantifies the impact of asymmetric information on equilibrium contracts and welfare. Counterfactual simulations show that, because of the externality

What explains cross-sectional dispersion in stock valuation ratios? We find that 75% of dispersion in price–earnings ratios is reflected in differences in future returns, while only 25% is reflected in differences in future earnings growth. This holds at both the portfolio-level and the firm-level. We reconcile these conclusions with previous literature which has found a strong relation between prices

Houses with higher value uncertainty receive less mortgage credit: mortgages backed by these houses are more likely to be rejected, have higher interest rates, and have lower loan-to-price ratios. The relationship between house value uncertainty and credit availability is driven partly by a classic channel in which uncertainty lowers debt recovery rates, and partly by a novel channel where more uncertain

We propose a model of lending, payments choice, and privacy in the digital economy. While digital payments enable merchants to sell goods online, they reveal information to their lender. Cash guarantees anonymity, but limits distribution to less efficient offline venues. In equilibrium, merchants trade off the efficiency gains from online distribution (with digital payments) and the informational rents

We explore indicators of market power in a data market. Markups cannot measure competition, because most data products’ marginal cost is zero, making the markup infinite. Yet, data monopolists may not exert monopoly power because they cannot commit to restricting data sales to future customers. This limited commitment and strategic substitutability of data undermine sellers’ monopoly power. But data

We study capital regulation in a dynamic model for bank deposits. Capital regulation addresses banks’ incentive for excessive leverage that dilutes depositors, but preserves some dilution to reduce bank defaults. We show theoretically that capital regulation is subject to a time inconsistency problem. In a model with non-maturing deposits where optimal withdrawals make deposits endogenously long-term

Open banking (OB) empowers bank customers to share their financial transaction data with fintechs and other banks. New cross-country data shows 49 countries adopted OB policies, privacy preferences predict policy adoption, and adoption spurs fintech entry. UK microdata shows that OB enables: (i) consumers to access both financial advice and credit; (ii) SMEs to establish new lending relationships.

We model the competition between digital forms of fiat money and private digital money. Countries digitize their currencies–by upgrading existing or launching new payment systems (including CBDCs)–to compete with foreign fiat currencies and private digital money. A pecking order emerges: less dominant currencies digitize earlier, reflecting a first-mover advantage; dominant currencies delay digitization

We document that the reallocation of central bank reserves towards banks with higher liquidity needs fosters credit supply. Exploiting the ECB's tiered reserve remuneration system for identification, we show that this system encouraged banks with low reserve holdings to obtain more reserves through the money market. Concomitantly, these banks reduced their securities holdings and extended more credit

The literature has documented “reaching for yield”—the phenomenon of investing more in risky assets when interest rates drop—among institutional investors. We analyze detailed transaction data from a large brokerage firm to provide direct field evidence that individual investors also exhibit this behavior. Consistent with models of portfolio choice with labor income, reaching for yield is more pronounced

We attribute variation in the strength of the U.S. dollar and its covariance with other currencies to economic primitives using a global asset demand system. We take global investor savings, asset supply, and monetary policy as exogenous primitives, and show how these variables explain dollar exchange rate behavior. Prior to the global financial crisis, global savings and demand shifts explain dollar

We demonstrate that off-exchange (wholesaler) executions provide significant cost savings to retail investors. Wholesaler concentration has raised regulatory concerns; however, we show that the largest wholesalers offer the lowest costs due to economies of scale. The entry of a new large wholesaler reduces incumbent scale economies, resulting in higher execution costs. Most retail brokers route to

Financial benchmarks such as LIBOR underpin the pricing of trillions of dollars of contracts around the world. We evaluate the quality of benchmark prices using a state-space model to separate information from noise. Applying the method to LIBOR benchmarks and their replacements, we find that alternative reference rates (ARRs) are less noisy in four of the five currencies. However, the USD ARR is considerably

We provide a spatial framework to study competition between banks and fintechs in the lending market and examine the impact on investment and welfare. Based on the key differences between banks and fintechs, we derive results consistent with the empirical evidence available. We find that fintechs with inferior monitoring efficiency can successfully enter because of their superior flexibility in pricing

Fluctuations in investor demand significantly affect firms’ valuation and access to capital. To quantify their real effects, we develop a dynamic investment model, incorporating both the demand and supply sides of capital. Strong investor demand relaxes financial constraints and facilitates equity issuance and investment, while weak demand encourages opportunistic share repurchases, crowding out investment

We document large racial disparities in the ability of homeowners to access their accumulated housing wealth. Minority homeowners are significantly more likely to have their mortgage equity withdrawal (MEW) product applications rejected than White homeowners, and the unconditional disparities are significantly larger than those found in prior studies that focused on purchase and rate/term refinance

We propose a fiscal policy expectations mechanism. When bad macro news arrives (in our study, when initial jobless claims (IJC) are higher than expected), investors may expect more generous government spending and drive up aggregate stock prices through the expected cash flow channel. Using a time-series sample from January 2013 to March 2021, we find that this phenomenon emerges when newspapers mention

This paper shows that supply shock uncertainty interacts with the monetary policy rule to drive bond risks in a New Keynesian asset pricing model. In my model, positive nominal bond-stock betas emerge as the result of volatile supply shocks but only if the monetary policy rule features a high inflation weight. Habit formation preferences generate endogenously time-varying risk premia, explaining the

We devise a simple model of liquidity demand and supply to study dealers’ liquidity provision in currency markets. Drawing on a globally representative data set of currency trading volumes, we show that at times when dealers’ intermediation capacity is constrained the cost of liquidity provision increases disproportionately relative to dealer-intermediated volume. Consequently, the otherwise strong

Intermediaries reduce agency problems through monitoring, but credible monitoring requires sufficient retention until the loan matures. We study credit markets when intermediaries cannot commit to retention. Two structures are examined: investors lending alongside an all-equity bank and investors lending through the bank via short-term debt. With a commitment to retention, they are equivalent. Without

Corporate earnings announcements unpack large bundles of public information that should, in efficient markets, trigger jumps in stock prices. Testing this implication is difficult in practice, as it requires noisy high-frequency data from after-hours markets, where most earnings announcements are released. Using a unique dataset and a new microstructure noise-robust jump test, we show that earnings

Distributed ledgers promise to enable the classical vision of money as a universal transaction record. But is it ever optimal to update a ledger through decentralized consensus? Analyzing an exchange economy with credit, we show that centralized updating is optimal when long-term rewards are more valued, minimizing redundant validation costs and maximizing economic surplus. Decentralization becomes

We use close to 80 million daily returns for more than 19,000 CRSP listed firms to establish the best forecasting model for realized idiosyncratic variances. Comparing forecasts from multiple models, we find that the popular martingale model performs worst. Using the root-mean-squared-error (RMSE) to judge model performance, ARMA(1,1) models perform the best for about 46% of the firms in out-of-sample

We introduce a new class of tree-based models, P-Trees, for analyzing (unbalanced) panel of individual asset returns, generalizing high-dimensional sorting with economic guidance and interpretability. Under the mean–variance efficient framework, P-Trees construct test assets that significantly advance the efficient frontier compared to commonly used test assets, with alphas unexplained by benchmark

Do federal tax incentives for banks investing in municipal bonds support local governments during recessions? This paper exploits a change in tax benefits for banks purchasing municipal bonds and finds that expanding access to bank financing during recessions increases local governments’ debt issuance and employment growth. The estimated job multiplier is 22 jobs per million dollars of spending. There

Lenders can exploit households’ payment data to infer their creditworthiness. When households value privacy, they then face a tradeoff between protecting such privacy and attaining better credit conditions. We study how introducing an informationally more intrusive digital payment vehicle affects households’ cash use, credit access, and welfare. A tech monopolist controls the intrusiveness of the new

Does the early-career exposure of bank CEOs to the 1980s savings and loans (S&L) crisis affect the outcomes of banks they subsequently managed? We measure the S&L crisis exposure by the bank failure rate in the states where CEOs worked during the S&L crisis. Armed with this measure, we find that banks managed by CEOs with higher S&L crisis exposure took on less risk and that these banks better survived

We leverage the capabilities of GPT-3 to generate historical business descriptions for over 63,000 global firms. Utilizing these descriptions and advanced embedding models from OpenAI, we construct time-varying business networks that represent business links across the globe. We showcase the performance of these networks by studying the lead–lag effect for global stocks and predicting target firms

The Tax Cuts and Jobs Act unlocked as much as $1.7 trillion of U.S. multinationals’ foreign cash. We examine the real and financial response to this liquidity shock and find that firms did not increase capital expenditures, employment, R&D, or M&A, regardless of financial constraints. On the financial side, firms paid out only about one-third of the new liquidity to shareholders and retained half as

We study retirement and bank account participation for the universe of U.S. households with a member aged 50 to 59 in the administrative tax data. ZCTA-level average income, income inequality, and racial composition predict retirement account participation for low-income households, conditional on household income and regional price parities. Income inequality also predicts bank account participation

We propose a model in which arbitrageurs act strategically in markets with entry costs. In a repeated game, arbitrageurs choose to specialize in some markets, which leads to the highest combined profits. We present evidence consistent with our theory from the options market, in which suboptimally unexercised options create arbitrage opportunities for intermediaries. We use transaction-level data to