Prof. Zhiguo He


  • Working papers
  • Intermediary Asset Pricing: New Evidence from Many Asset Classes, with Bryan Kelly and Asaf Manela, 09/2015.
    The market equity capital ratio factor of NY Fed's primary dealers not only prices equity portfolios but also other more sophisticated asset classes like fixed income, detivatives, commodities, and currencies.
  • A Model of Reserve Asset, with Arvind Krishnarthy and Konstantin Milbradt, 09/2015.
    The reserve asset tends to be the bonds issued by a relatively strong country. Large debt size helps the reserve asset status given a high global demand for safe asset.
  • Dynamic Debt Maturity, with Konstantin Milbradt, 09/2015. Presenation Slides.
    We study a dynamic setting in which a firm chooses its debt maturity structure and default timing endogenously default without commitment. The shortening equilibrium may be Pareto dominated by the lengthening equilibrium.
  • Leverage Dynamics without Commitment, with Peter DeMarzo, 12/2014, coming soon.
    Firms who cannot commit to their future leverages will issue debt but never repurchase at any point of time. With finite maturity debt which naturally retires, the firm's leverage follows an endogenous mean-reverting process.
  • A Macroeconomic Framework for Quantifying Systemic Risk, with Arvind Krishnamurthy, 06/2014. Presentation Slides, Matlab code. R&R American Economic Review.
    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, 07/2015.
    We generate 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, default probabilities, and bid-ask spreads across business cycles and 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 10%~24% of observed credit spreads.
  • Optimal Long-term Contracting with Learning, with Bin Wei, Jianfeng Yu, and Feng Gao, 10/2014. 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.
  • Publications
  • Agency Frictions in Financial Markets and Macroeconomics
  • Inefficient Investment Waves, with Peter Kondor, 08/2015. forthcoming in Econometrica. Presenation Slides, Online Appendix, Additional Material.
    We study individual firms' optimal liquidity management problem in a general equilibrium setting. Missing markets for idiosyncratic investment opportunities lead to pecuniary externality and two-sided inefficiency: Firms invest too much during booms and too little during recessions, relative to the constrained efficient economy.
  • 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 code.
  • 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. 
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