Working Papers:

Equity Flows in Uncertain Times: the Role of Heterogeneous Information (with Francesco Beraldi and Chenping Yang) [Draft coming soon] 

Presented at the Sveriges Riksbank Internal Seminar.

We study the role of information heterogeneity across countries in shaping the patterns of capital flows during the global financial cycle.  In times of high uncertainty, investors retrench toward their own country, however, foreigners move capital toward the United States.  We use forecast data on the macroeconomic and financial performance of 25 countries, and we find that domestic forecasters have a superior ability to predict the economic outcomes of their own country, but that the US is an exception also to these patterns, as American forecasters do not outperform foreign institutions when forecasting the US.  We then build a model of portfolio choice and endogenous information acquisition with heterogeneous learning costs, which we calibrate to replicate our empirical findings on forecasting ability. Our model predicts that in periods of global uncertainty investors specialize towards assets in which they have a comparative advantage. We verify this prediction in the data: the relative precision of domestic forecasters increases with global uncertainty. As a result, during uncertain times investors retrench toward their home country and capital flows toward the United States, parsimoniously replicating the stylized facts of the global financial cycle.  

Customer Capital and the Aggregate Effect of Short-Termism  (with Marco Errico and Luigi Pollio[Draft] [SSRN] [Slides]

Presented at the Spring 2023 GLMM BC-BU, at the Federal Reserve Bank of Boston, at the IEA, at the Midwest Macro Meeting (Fall 2023) and at the Econometric Society Conference (Fall 2023).

Managers face continuous pressure to meet short-term forecasts and targets, which can potentially impact firms' investments in customer capital and pricing decisions.  Using data on U.S. public companies together with IBES analysts' forecasts, we find that firms that just meet analysts' profit forecasts have an average markup growth of 0.8% higher than firms that just miss targets, suggesting opportunistic markup manipulation. To assess the aggregate economic implications of short-termism, we develop and estimate a quantitative firm-heterogeneity model that incorporates short-term frictions and endogenous markups resulting from customer accumulation. In the model, short-termism arises optimally to offset manager's private incentives, resulting in higher markups and lower customer capital stock. We find that, on average, firms increase markups by 8% due to short-termism, generating $38 millions of additional annual profits. At the macro level, the distortion reduces consumers' welfare by 4% and lowers the annual total market capitalization by $3.1 trillions on average.

Work in Progress:

Importer's Dynamics and Exchange Rate Risk (with Marco Errico and Luigi Pollio)  

Bank Risk Taking under Secular Stagnation (with J. Christina Wang)