Published and Accepted Papers

Historical Antisemitism, Ethnic Specialization, and Financial Development

Media Coverage: The Economist, The American Interest, Haaretz, The Marker, Tablet Magazine, La Stampa, Die Welt, Oekonomenstimme, ZU Daily, Journalist's Resource
Review of Economic Studies, (conditionally) accepted for publication
Abstract: For centuries, Jews in Europe have specialized in nancial services. At the same time, they have been the victims of historical antisemitism on the part of the Christian majority. We find that present-day financial development is lower in German counties where historical antisemitism was higher, compared to otherwise similar counties. Households in counties with high historical antisemitism have similar savings rates but invest less in stocks, hold lower bank deposits, and are less likely to get a mortgage (but not to own a house) after controlling for wealth and a rich set of current and historical covariates. Present-day antisemitism and supply-side forces do not appear to fully explain the results. Present-day households in counties where historical antisemitism was higher express lower trust in finance, but have levels of generalized trust similar to other households.


2016 Barcelona Summer Forum: Towards Sustained Economic Growth, NBER Behavioral Finance Meeting 2014, NBER SI Political Economy 2015, EFA 2015, Miami Behavioral Finance Conference, UBC Summer Finance Conference, SunTrust Finance Conference 2014, European Winter Finance Conference 2015, The European Winter Finance Summit 2015, SED 2015, Midwest Finance Conference 2015.

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Unconventional Fiscal Policy

with Francesco D'Acunto and Daniel Hoang

American Economic Review Papers & Proceedings, accepted for publication
Abstract: Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We provide preliminary evidence for the effectiveness of such policies using changes in value-added tax (VAT) and household survey data for Poland. We find households increased their inflation expectations and willingness to purchase durables before the increase in VAT. Future research has to ensure income, wealth effects, or intratemporal substitution channels cannot explain these results and ideally exploit exogenous variation in VAT in a fixed nominal interest rate environment.


2018 AEA
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Flexible Prices and Leverage

Media Coverage: Chicago Booth Review
Journal of Financial Economics, accepted for publication
Abstract: The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most flexible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital structure. Sticky-price firms increased leverage more than flexible-price firms following the staggered implementation of bank deregulation across states and over time, which we use in a difference-in-differences strategy. Firms' frequency of price adjustment did not change around the deregulation.


NBER CF 2016, NBER SI Capital Markets and the Economy 2016, 2016 Edinburgh Corporate Finance Conference, 2016 ASU Sonoran Winter Finance Conference, 2016 WFA, Stockholm Corporate Finance Symposium 2016, FIRS 2016 Conference, 2016 Risk Management Conference Mont Tremblant, 2016 Calgary, HEC, McGill Winter Conference, EFA 2015
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Cash Flow Duration and the Term Structure of Equity Returns

Colloquium on Financial Markets Best Paper Award
Media Coverage: alpha architect
Journal of Financial Economics, accepted for publication
Abstract: The term structure of equity returns is downward-sloping: stocks with high cash flow duration earn 1.10% per month lower returns than short-duration stocks in the cross section. I create a measure of cash flow duration at the firm level using balance sheet data to show this novel fact. Factor models can explain only 50% of the return differential, and the difference in returns is three times larger after periods of high investor sentiment. Analysts extrapolate from past earnings growth into the future and predict high returns for high-duration stocks following high-sentiment periods, contrary to ex-post realizations. I use institutional ownership as a proxy for short-sale constraints, and find the negative cross-sectional relationship between cash flow duration and returns is only contained within short-sale constrained stocks.


AFA 2016, 2016 Colloquium on Financial Markets, 2016 Econometric Society European meeting, NBER AP 2015, Colorado Finance Summit 2015, 2015 China International Conference in Finance, 2015 HEC-McGill Winter Finance Workshop, SGF 2013
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Are Sticky Prices Costly? Evidence from the Stock Market

Media Coverage: AEA Research Highlight, Econbrowser, The Economist, Economist's View, WCEG, DeLong
American Economic Review (2016), 106(1): 165-199.
Abstract:We show that after monetary policy announcements, the conditional volatility of stock market returns rises more for firms with stickier prices than for firms with more flexible prices. This differential reaction is economically large and strikingly robust to a broad array of checks. These results suggest that menu costs—broadly defined to include physical costs of price adjustment, informational frictions, etc.—are an important factor for nominal price rigidity at the micro level. We also show that our empirical results are qualitatively and, under plausible calibrations, quantitatively consistent with New Keynesian macroeconomic models in which firms have heterogeneous price stickiness.


NBER EFG 2013, NBER SI EFG-PD 2013, ESNASM 2013, Barcelona Summer Forum 2013, BU/ Boston Fed Conference 2013, German Economists Abroad Conference 2013.

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Conditional Risk Premia in Currency Markets and Other Asset Classes

Winner of the 2013 AQR Insight Award
Media Coverage: AQR Announcement, WSJ, Reuters
Journal of Financial Economics (2014), 114(2): 197-225.
Abstract:The downside risk CAPM (DR-CAPM) can price the cross section of currency returns. The market-beta differential between high and low interest rate currencies is higher conditional on bad market returns, when the market price of risk is also high, than it is conditional on good market returns. Correctly accounting for this variation is crucial for the empirical performance of the model. The DR-CAPM can jointly explain the cross section of equity, commodity, sovereign bond and currency returns, thus offering a unified risk view of these asset classes. In contrast, popular models that have been developed for a specific asset class fail to jointly price other asset classes.


AEA 2012, EFA 2012, EEA 2012, ESNAWM 2013, AQR 2013, NBER AP 2013, Finance Cavalcade 2013, Imperical College FX Conference 2013, 2016 Quantitative Trading Symposium.

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American Option Valuation: Implied Calibration of GARCH Pricing--Models

Journal of Futures Markets (2011), 31(10): 971-994.
Abstract:This article analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous sudies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach.


FMA EM 2010

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other publications

The Effect of Unconventional Fiscal Policy on Consumption Expenditure

with Francesco D'Acunto and Daniel Hoang

Media Coverage: Chicago Booth Review, WSJ
ifo DICE Report (2017), 15(1): 9-11.
Abstract:The Euro area faces zero inflation paired with low economic growth, at a time when the effective lower bound on nominal interest rates and large budget deficits are constraining conventional monetary and fiscal policy. In this article, we discuss the theoretical and empirical evidence on unconventional measures of fiscal policy that increase inflation, spur economic growth, and keep the tax burden on households constant without inducing budget deficits


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Working Papers

Nominal Rigidities and Asset Pricing

UBS Best Conference Paper Prize at the EFA Annual Meeting 2014
2014 EFA Best Doctoral Student Conference Paper Prize
Best Finance PhD Award in Honor of Prof. Greenbaum (Finalist)
Cubist Systematic Strategies PhD Candidate Award for Outstanding Research
Best PhD Student Paper Award, FMA European Conference 2014
revise and resubmit, Journal of Political Economy
Abstract:This paper examines the asset pricing implications of nominal rigidities. Firms that adjust their product prices infrequently earn a return premium of more than 4% per year. Merging unique product-price data at the firm level with stock returns, I document that the premium for sticky-price firms is a robust feature of the data and varies substantially over the business cycle. The premium is not driven by other firm and industry characteristics. Differential exposure to systematic risk fully explains the premium for sticky-price firms.


WFA 2014, NBER SI Impulse and Propagation Mechanisms 2014, NBER SI EFG-PD 2014, SED 2014, EFA 2014, EEA 2014, Duke Conference on Macroeconomics and Finance 2014, CEPR European Summer Symposium in Financial Markets, 5th Ifo Conference on Macroeconomics and Survey Data, Mannheim Macro Conference 2014, Jerusalem Finance Conference 2014, 6th Joint French Macro Workshop, Warwick Frontiers of Finance 2014, FMA Europe 2014, Safe Asset Pricing Workshop 2014, German Economists Abroad Conference 2014, Paris December 2014 Finance Meeting, Annual Meeting of the German Finance Association.
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Dissecting Characteristics Nonparametrically

revise and resubmit, Review of Financial Studies
Abstract: We propose a nonparametric method to study which characteristics provide incremental information for the cross section of expected returns. We use the adaptive group LASSO to select characteristics and to estimate how they affect expected returns nonparametrically. Our method can handle a large number of characteristics, allows for a flexible functional form, and is insensitive to outliers. Many of the previously identifed return predictors do not provide incremental information for expected returns, and nonlinearities are important. Our proposed method has higher out-of-sample explanatory power compared to linear panel regressions.


2017 NBER SI Forecasting and Empirical Methods, 2017 Texas Finance Festival, 2017 Revelstoke Finance Conference, 2016 Santiago Finance Workshop, SFS Finance Cavalcade 2017, FRA Conference 2016, TAU Finance Conference 2016, 2017 Luxembourg Asset Management Summit, 2017 Finance UC Conference, AFA 2018
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The Effect of Unconventional Fiscal Policy on Consumption Expenditure

Media Coverage: Bloomberg Surveillance, Die Welt, VoxEU, Econbrowser
Abstract:Unconventional fiscal policy uses announcements of future increases in consumption
taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We exploit a unique natural experiment for an empirical test of the effectiveness of unconventional fiscal policy. To comply with European Union law, the German government announced in November 2005 an unexpected 3-percentage-point increase in value-added tax (VAT), effective in 2007. The shock increased households' inflation expectations during 2006 and actual inflation in 2007. Germans' willingness to purchase durables increased by 34% after the shock, compared to before and to matched households in other European countries not exposed to the VAT shock. Income, wealth effects, or intratemporal substitution cannot explain these results which are, instead, consistent with an intertemporal-substitution channel.


2017 CES-ifo Venice Summer Institute, AEA 2016, New York Fed Workshop on Subjective Expectations, 9th Conference of the International Research Forum on Monetary Policy, NBER ME 2015, 5th Macro Finance Workshop, 2015 Reserve Bank of Australia’s Quantitative Macroeconomics Workshop, Conference on The Price-Stability-Target in the Eurozone and the European Debt Crisis, 2015 Household Economics and Decision-Making Conference Cleveland Fed, 6th Ifo Conference on Macroeconomics and Survey Data, Midwest Macro Meeting 2015, SED 2015, EEA 2015, Bundesbank PHF Workshop, Econometric Society 2015 World Congress, Chicago Junior Macro and Finance meetings, 8th Joint French Macro Workshop, AEA 2018
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The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy

Abstract: We develop a multi-sector Calvo model with intermediate inputs to study the quantitative importance of heterogeneities in price rigidities, sector size, input-output linkages and their interactions for the real effects of monetary policy shocks. Theoretically, real effects are bigger if the share of intermediate inputs is high or if sticky-price sectors are important suppliers to the rest of the economy, to large sectors and to flexible-price sectors on impact, but to sticky price sectors following the shock. Sectoral aggregation decreases real effects. Quantitatively, heterogeneity in input-output linkages contributes only marginally to the real effects of monetary policy shocks, whereas heterogeneity in the frequency of price adjustment creates large real effects. Differences in consumption shares have an economically important effect on real effects. To reach those conclusions, we calibrate a 350-sector version of the model to the input-output tables from the Bureau of Economic Analysis and the micro-data underlying the producer price index from the Bureau of Labor Statistics. A less disaggregated calibration with only 58 (8) sectors understates the cumulative real effects of monetary policy by 20% (34%), with a similar impact response of inflation.


AEA 2017, Inflation: Drivers and Dynamics Conference 2016, Annual Inflation Targeting Seminar of the Banco Central do Brasil 2016, 2016 Konstanz Conference on Monetary Theory and Policy, Banque de France Conference on Price Setting and Inflation, EEA 2015, SED 2015


Price Rigidities and the Granular Origins of Aggregate Fluctuations

Abstract: We study the ability of sectoral shocks to generate aggregate fluctuations in a multi-sector general equilibrium model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We show fat-tailed distributions of sectoral size or network centrality are neither necessary nor sufficient for idiosyncratic shocks to generate aggregate fluctuations when the responsiveness of prices to shocks varies across sectors. We derive conditions under which a frictional origin of aggregate fluctuations arises, that is, when micro shocks contribute to aggregate fluctuations in an economy with heterogeneous price rigidities but equal sector size and network centrality across sectors. We calibrate a 341-sector version of the model to the United States and find a quantitatively large frictional effect. When we allow for heterogeneities in price rigidity, sector size, and network centrality, the effect of micro shocks on GDP volatility doubles relative to a frictionless economy. Heterogeneity in price rigidity also substantially changes the identity of the sectors from which GDP fluctuations originate.


NBER ME 2017, SED 2016, LSE Workshop on Networks in Macro and Finance 2017, AEA 2018
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Monetary Policy Through Production Networks: Evidence from the Stock Market

Abstract: We study the importance of production networks for the transmission of macroeconomic shocks using the stock market reaction to monetary policy shocks as a laboratory. We decompose the overall effect of monetary policy shocks into a direct effect and a network effect and attribute 50 to 85 percent of the overall effect to the network effect. Large network effects are a robust feature of the data, and we document similar patterns in realized cash-flow fundamentals. A simple model with intermediate inputs predicts that the reaction of stock returns to shocks follows a spatial autoregression, which we exploit for our empirical strategy. Our results suggest that production networks are an important mechanism for transmitting aggregate shocks to the real economy.


AEA 2017, NBER ME 2016, NBER SI Impulse and Propagation Mechanisms, 2016 LSE Economic Networks and Finance Conference, Firms in Macroeconomics Conference 2016, SED 2016, 2016 Barcelona Summer Forum: Asset Prices, Finance and Macroeconomics, CEPR Asset Prices and the Macroeconomy Conference, 2016 European Finance Association Annual Meeting, 2016 Texas Finance Festival, 2016 Duke-UNC Asset Pricing Conference, 2016 Adam Smith Asset Pricing Workshop, 2016 Istanbul Conference on Advances in Empirical Macro & Finance, International Conference on Sovereign Bond Markets, Ghent Workshop on Empirical Macroeconomics, 2016 Econometric Society North American Summer Meeting, 2016 European Economic Association Annual Meeting, 2016 University of Washington Summer Finance Conference
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Monetary Policy Slope and the Stock Market

Media Coverage: Systemic Risk and Systemic Value
Abstract: We construct a slope factor from changes in federal funds futures of different horizons. A positive slope signals faster monetary policy tightening and predicts negative excess returns at the weekly frequency. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters, but macro news does not drive the predictability of slope for future excess returns. Our findings are consistent with a delayed market reactions due to investor inattention.


AFA 2018, AEA 2017, FIRS 2017 Conference, SFS Finance Cavalcade 2017, 2016 European Finance Association Annual Meeting, 2016 Ifo Conference on Macroeconomics and Survey Data, 2017 HEC-McGill Winter Finance Workshop, 2016 European Economic Association Annual Meeting, 2016 Wabash River Conference, 2017 The European Winter Finance Summit, AFA 2018
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Monetary Momentum

Media Coverage: alpha architect
Abstract: We document a large return drift around monetary policy announcements by the Federal Open Market Committee. Stock returns start drifting up 25 days before expansionary monetary policy surprises, whereas they decrease before contractionary surprises. The cumulative return difference across expansionary and contractionary policy decisions amounts to 2.5% until the day of the policy move and continues to increase to more than 4.5% 15 days after the meeting. The return drift is a market-wide phenomenon, holds for all industries, and many international equity markets. In the cross section of stocks, size, value, profitability, and investment do not exhibit differential return drifts. Momentum is an exception, because past losers plummet around contractionary monetary policy surprises. A simple trading strategy exploiting the drift around FOMC meetings increases Sharpe ratios relative to a buy-and-hold investment by a factor of 4.


2017 Colorado Finance Summit, 2017 German Economists Abroad Conference
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The Information Content of Dividends: Safer Profits, Not Higher Profits

Media Coverage: WSJ, Harvard Law School Forum on Corporate Governance and Financial Regulation
Abstract: Contrary to signaling models’ central predictions, changes in profits do not empirically follow changes in dividends, and firms with the least need to signal pay the bulk of dividends. We show both theoretically and empirically that dividends signal safer, rather than higher, future profits. Using the Campbell (1991) decomposition we find that cash-flow-volatility changes follow dividend and repurchase changes (in opposite direction), and that larger volatility changes come with larger announcement returns consistent with our model's predictions. The data support the prediction that the signaling cost is foregone investment opportunities. We conclude payout policy conveys information about future cash-flow volatility.


2017 NBER Corporate Finance, 2017 Olin Corporate Finance Conference, 2017 TAU Finance Conference, 2018 Adam Smith Conference, 2018 Review of Corporate Finance Studies Conference
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