Publications

Crowded Trades and Tail Risk

with Gregory Brown and Christian Lundblad (Review of Financial Studies 2022)

Abstract: Hedge fund positions are an important component of crowded trades. These vehicles are particularly active, take highly concentrated positions, and utilize leverage and short sales. Using a database of hedge fund holdings, we measure the degree of security-level crowdedness. The difference between the average returns on portfolios sorted by high versus low crowdedness portfolios is sizable and their variation is distinct from other traditional risk factors. Further, hedge fund exposures to crowdedness are often significant and they help to explain downside "tail risk", as funds with higher exposures experience relatively larger drawdowns during periods of industry distress.

BKK the EZ Way: International Long-Run Growth News and Capital Flows

with Riccardo Colacito, Mariano M. Croce and Steven Ho (American Economic Review 2018)

Abstract: We study the response of international investment flows to short- and long-run growth news. Among developed G7 countries, positive long-run news for domestic productivity induces a net outflow of investments, in contrast to the effects of short-run growth shocks. We document that a standard Backus, Keho, and Kydland (1994) (BKK) model fails to reproduce this novel empirical evidence. We augment this model with Epstein and Zin (1989) preferences (EZ-BKK) and characterize the resulting recursive risk-sharing scheme. The response of international capital flows in the EZ-BKK model is consistent with the data.

Working Papers

Welfare Implications of Asymmetric Monetary Policy Rules

with Anthony Diercks and Jonathan Rawls

Abstract: We characterize the welfare implications of the Federal Reserve's new monetary policy framework. We first show that the dynamics of the new framework can be model with a Taylor rule that features super-inertial price level targeting. Unconditionally, this closes the deflationary bias. Then we show the new policy stabilizes prices at the ZLB. The price stabilization reduces consumption volatility and is welfare enhancing. In addition, the new policy reduces the equity risk premium, which results in higher asset valuations and exacerbates inequality.

Hedge Fund Activism Risk & Performance

with Gregory Brown, Juha Joenväärä and Christian Lundblad

Abstract: Using a novel data set containing fund returns and characteristics for almost all activist hedge funds, we study the risk-reward characteristics of activist hedge funds. Our preliminary analysis shows a large return gap between activist hedge funds and activist campaigns. Currently we seek to answer: Do activist hedge funds create value and/or risk for long-term investors? Who reaps the rewards from activist campaigns: shareholders, fund managers, and/or fund investors? Are fund risk-adjusted returns related to short-term and/or long-term activist objectives and tactics?

Asset Pricing at the Zero Lower Bound

Abstract: In a New-Keynesian model subject to the zero lower bound (ZLB), constrained monetary policy endogenously results in time-varying equity risk premia and equity-bond market correlations. Liquidity traps at the ZLB are characterized by negatively skewed and increasingly uncertain consumption growth, labor growth, and inflation. Investors with recursive preferences price the liquidity traps, resulting in rising equity risk premiums. Real bond yields and equity returns become negatively correlated at the ZLB, while positive in normal times. The model provides a general equilibrium foundation for 1) the time-varying comovement amongst macroeconomic quantities and asset prices observed during the the Great Recession and 2) why real bonds ceased to provide investors with insurance at the ZLB, precisely when they valued it most.

Undergraduate Publications

Vortex Induced Oscillations of a Cylinder at Low and Intermediate Reynolds Numbers

with Roberto Camassa, Bong Jae Chung, Richard McLaughlin, and Ashwin Vaidya (Advances in Mathematical Fluid Mechanics 2010)

Abstract: We study the orientational behavior of a hinged cylinder suspended in a water tunnel in the presence of an incompressible flow with Reynolds number (Re), based on particle dimensions, ranging between 100 and 6000 and non-dimensional inertia of the body (I*) in the range 0.1–0.6. The cylinder displays four unique features, which include: steady orientation, random oscillations, periodic oscillations and autorotation. We illustrate these features displayed by the cylinder using a phase diagram which captures the observed phenomena as a function of Re and I*. We identify critical Re and I* to distinguish the different behaviors of the cylinders. We used the hydrogen bubble flow visualization technique to show vortex shedding structure in the cylinder’s wake which results in these oscillations.