Financial Intermediation, Asset Pricing, Information Economics.
How much would investors pay to receive valuable informational signals slightly before they are released publicly? In a new paper coauthored with Ohad Kadan, we derive a general expression for the value of information to an investor and provide a framework for its estimation from index options. We apply this framework and estimate that a consumer-investor with commonly-used preference parameters would pay 1 to 4 percent of his wealth to preview and act on key macroeconomic indicators (GDP, unemployment, etc.).
In a new paper with Zhiguo He and Bryan Kelly, we find that innovations to the equity capital ratio of primary dealers price not only equity and government bond market portfolios, but also other more sophisticated asset classes such as corporate and sovereign bonds, derivatives, commodities, and currencies. The price of intermediary capital risk is consistently positive and of similar magnitude in many asset classes, suggesting these financial intermediaries are marginal investors in many markets and hence key to understanding asset prices.
Presentations: Stanford, Penn State, University of Iowa, Gerzensee Summer School 2015, CITE 2015
Regulation is often funded with fees paid by regulated firms, potentially creating incentive problems. In a new paper with Roni Kisin, we use this feature to study the incentives of regulators and their ability to affect firm behavior. Our identification approach uses multiple kinks in fee schedules of federal bank regulators as a source of exogenous variation. Using a novel dataset on fees and regulatory actions, we find that firms that pay higher fees face more lenient regulation, which leads to a buildup of risk.
Presentations: FDIC, HBS, IDC Herzliya, UCSD, U Washington, Washington U, Notre Dame Conference on Financial Regulation, FTG Summer School in Financial Intermediation