Working Papers

Subjective Expected Equity Risk Premium And Analyst Reports (2022), Job Market Paper

Abstract: Survey data on expectations of stock market returns show the existence of a subjective equity premium. It varies highly over time. In order to understand the observed dynamics, I examine the market for information. Data on the sentiment of analyst reports shows that, when learning about aggregate market dynamics, a rational retail investor weighs individual equity reports equally, thus weighing more information providers with higher reporting activity on the market for information. The data also shows that trading strategies based on information from less active information providers outperform S&P 500 Index and strategies based on information from more active providers. Since the investor follows the news consistent with the point of view of more active information providers, his subjective expectations are distorted. The distortion stems from discretionary treatment of information from less active information providers, as it decreases information set that the investor uses to form his expectations about asset markets. As this learning is persistent, it leads to the formation of equilibrium cointegrated relationships between selected signals about earnings and subjective expectations of risk premium, and introduces a persistent time-varying component into subjective equity premium.

Geographical COVID-19 Uncertainty and The Market Impact of Initial Jobless Claims News (2022) with Thomas Gilbert

Abstract: We investigate whether COVID-19 uncertainty affects the stock market's reaction to macroeconomic news. We construct a daily measure of fundamental health uncertainty as the dispersion in the change in new cases across all 50 U.S. states. If, over a given week, the number of new cases goes down in some states but up in others, investors will be more uncertain about the future path of the pandemic compared to a week when the number of new cases goes up (or down) in all states. While the weekly release of initial jobless claims lost direct impact on high-frequency E-mini S&P 500 futures during the pandemic, we show that the marginal effect of health uncertainty is strongly negative during the pandemic. As health uncertainty increases, the release of higher than expected initial jobless claims has an increasingly negative impact on announcement market returns.

Speculative Floating Oil (2022) with Solène Collot and Andrei Kirilenko, Best Paper Award at CU Denver Business School's International Commodity Symposium at University of Colorado Denver

Abstract: We build a partial equilibrium asset pricing model in which we develop a limits to arbitrage extension by introducing cash-and-carry traders’ activities in a speculative storage framework. Our model overcomes important issues found in the literature. First, we propose a closed form pricing equation for the term structure of commodity futures prices with a critical nonlinearity parameter that captures the nonnegativity of speculative storage. Second, we recover a proxy for speculative seaborne inventory of crude oil using a new data set collecting granular information on every tanker that delivered seaborne crude oil into the United States during 2008-2012. As predicted by the model, we find that in equilibrium, cash-and-carry traders’ activities are non-linearly linked to the risk premium in commodity prices and the cost of floating storage. We show that, not only our model is capable to incorporate first-order features of the data but also that, arbitrageurs have the ability to send a powerful signal about the state of the market

and alert market participants as well as policy-makers to potential supply disruptions.

Transmission of Foreign Monetary Shocks Under Structural Instability: The Case of Russia (2018) with Konstantin Styrin and Yulia Ushakova , Revise and Resubmit at Journal of International Money and Finance

Abstract: The paper studies the transmission of monetary policy shocks in the U.S. to a small open economy by estimating their effect on lending based on bank-level balance sheet data of Russian banks for 2000-2018. To identify the causal effect at the bank level we exploit heterogeneity across banks in terms of their reliance on cross-border funding. We find evidence that the effect of U.S. monetary policy shocks has been statisti­cally and economically significant. Surprisingly, the magnitude of the effect remained roughly the same even after the monetary policy in Russia transited from exchange rate to inflation targeting. This finding suggests that a free floating regime does not attenuate the effect of foreign monetary policy shocks on domestic lending.