Prof. Zhiguo He

Papers

  • Publications
  • Agency Frictions in Financial Markets and Macroeconomics
  • Information Acquisition in Rumor-based Bank Runs, with Asaf Manela, 01/2014, forthcoming in Journal of Finance. Presentation Slides.
    Rumors (information without discernible origin) about bank liquidity trigger bank runs with endogenous gradual withdrawal. Information acquisition and the "fear-of-bad-signal-agents" effect can subject solvent-but-illiquid banks, that are free from runs otherwise, to bank runs.
  • Intermediary Asset Pricing, 2013, with Arvind Krishnamurthy, American Economic Review 103(2), pp. 732-770. Presentation Slides, Matlab codes.
  • A Model of Capital and Crises, 2012, with Arvind Krishnamurthy, Review of Economic Studies 79(2): pp. 735-777. Presentation Slides.

  • Financial Sector Leverage Data: Both Restud and AER papers predict that leverage of the financial sector in general equilibrium rises during crises, rather than falls as would be consistent with a deleveraging model. The difference is market leverage versus book leverage. This short note presents empirical evidence consistent with our model. It also explains the empirical deleveraging pattern that other models have focused on. 
  • Working papers
  • Inefficient Investment Waves, with Peter Kondor, 07/2013. Presenation Slides.
    We study a standard investment problem with cash buffering in a general equilibrium setting. Idiosyncratic investment opportunities lead to pecuniary externality and two-sided inefficiency: Firms make too much investment in booms and too little investment in recessions, relative to the constrained efficient economy.
  • A Macroeconomic Framework for Quantifying Systemic Risk, with Arvind Krishnamurthy, 06/2014. Presentation Slides, Matlab codes.
    Winner of Swiss Finance Institute Outstanding Paper Award 2012
    Systemic risk arises when shocks lead to states where a disruption in financial intermediation adversely affects the economy and feeds back into further disrupting financial intermediation. We calibrate our model and use it to match the systemic risk apparent during the 2007/2008 financial crisis.
  • Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle, with Hui Chen, Rui Cui, and Konstantin Milbradt, 06/2014. Presentation Slides.
    We explain both non-default and default components of corporate bonds by introducing over-the-counter search frictions into a structural model with time varying macroeconomic conditions. We match the credit spreads and default probabilities, as well as Bond-CDS spreads and bid-ask spreads, across different rating classes. Through a novel model-based decomposition scheme that captures the interaction between default and liquidity, we find the interaction terms account for about 25%~40% of observed credit spreads.
  • Debt and Creative Destruction: Why Could Subsidizing Corporate Debt Be Optimal? with Matvos Gregor, 07/2013. Presentation Slides.
    Subsidizing corporate debt allieviates the negative externality between firms' delayed exit decisions in declining industries. The duration of industry distress is important in assessing the welfare implication of corporate debt subsidies.
  • Optimal Long-term Contracting with Learning, with Bin Wei and Jianfeng Yu, 01/2014. Presentation Slides.
    With uncertain profitablity in dynamic agency relationship, the agent has incentive to shirk to manipulate the principal's future belief, giving rise to a long-lasting hidden information problem. The optimal contract implements time-decreasing effort, and has a feature of "stock options" in that incentive goes up after good performance.
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