Financial Intermediation, Asset Pricing, Information Economics.
The Shadow Cost of Bank Capital Requirements has been accepted for publication at the Review of Financial Studies. In the paper coauthored with Roni Kisin, we estimate the shadow cost of capital requirements using data on a costly loophole that allowed banks to relax these constraints. We find that increasing capital requirements would impose a modest cost—$220 million a year for all participating banks combined per 1pp increase, and $14 million on average.
News Implied Volatility and Disaster Concerns has been accepted for publication at the Journal of Financial Economics. In the paper coauthored with Alan Moreira, we construct a text-based measure of uncertainty starting in 1890 using front-page articles of the Wall Street Journal. Consistent with a time-varying rare disaster risk model, high news implied volatility (NVIX) predicts periods of above average stock returns, or periods of large economic disasters. News coverage related to wars and government policy explains most of the time variation in risk premia our measure identifies. See NVIX Interactive for more ...
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