Research
Publications
- Time Variation in the News-Returns Relationship (with Paul Glasserman and Harry Mamaysky)
Journal of Financial and Quantitative Analysis, 60(1), February 2025 Abstract
The speed of stock price reaction to news exhibits substantial time variation. Higher risk-bearing capacity of financial intermediaries, lower passive ownership of stocks, and more informative news increase price responses to contemporaneous news; surprisingly, these interaction variables also increase price responses to lagged news (underreaction). A simple model with limited attention and three investor types (institutional, noninstitutional, and passive) predicts the observed variation in news responses. A long-short trading strategy based on news sentiment earns high returns, which increase when conditioning on the interaction variables. The interactions we document are robust to the choice of news source.
Working Papers
- Retail Trading and Asset Prices: The Role of Changing Social Dynamics
This version: February 2025 Abstract
Social media-fueled retail trading poses new risk to institutional investors. I develop a model to analyze the origin and pricing of this risk. Retail investors participate in a social network with concentrated linkages, which means their idiosyncratic sentiment shocks can lead to aggregate fluctuations in retail sentiment. These fluctuations shift investor composition, which in turn determines the price of retail sentiment risk. I calibrate the model to match price, quantity, and sentiment dynamics around the January 2021 short squeeze. Using the calibrated model, I quantify the impact of evolving social network topology on asset prices. - Neoclassical Growth Transition Dynamics with One-Sided Commitment (with Dirk Krueger and Harald Uhlig)
This version: December 2024
[Paper] [Slides] Abstract
This paper characterizes the transition dynamics of a continuous-time neoclassical production economy with capital accumulation in which households face idiosyncratic income risk and cannot commit to repay their debt. Therefore, even though a full set of contingent claims that pay out conditional on the realization of idiosyncratic shocks is available, the equilibrium features imperfect insurance and a non-degenerate cross-sectional consumption distribution. When household labor productivity takes two values, one of which is zero, and the utility function is logarithmic, we characterize the entire transition dynamics induced by unexpected technology shocks, including the evolution of the consumption distribution, in closed form. Thus, the model constitutes an analytically tractable alternative to the standard incomplete markets general equilibrium Aiyagari (1994) model by retaining its physical environment, but replacing the incomplete asset markets structure with one in which limits to consumption insurance emerge endogenously due to limited commitment.
