Working Papers

Corporate Debt and Monetary Policy - with Andrea Fabiani and Luigi Falasconi 

We show that a policy rate cut lengthens corporate debt maturity. A 1 standard deviation (10 basis points) interest rate cut raises the share of long-term debt by 87 basis points, explaining 20% of its variation. In the cross-section, large and bond-issuing firms drive this adjustment. We provide a theory to rationalize these findings. A policy rate cut increases demand for long-term bonds due to reach for yield. Financial frictions allow only large, unconstrained firms to benefit by refinancing at lower yields. Empirical evidence on corporate bond issuance and insurer debt security holdings supports our proposed mechanism. 

Disagreement about Bitcoin - with Ilja Kantorovitch

We test the theoretical predictions of the differences-of-opinion literature by analyzing the extensive online discussion on Bitcoin to build a time-varying sentiment distribution, defining disagreement as dispersion in sentiment. High disagreement is associated with negative returns, high turnover growth, and high volatility, confirming the theory's predictions. However, we do not find that an increase in disagreement increases the price, which is seemingly at odds with the theoretical prediction of disagreement leading to overpricing. As the theory predicts, the disagreement effect weakens significantly after shorting instruments were introduced at the end of 2017. Our results are economically significant: at the monthly frequency, a one standard deviation increase in disagreement leads to a 9.2 percentage points lower cumulative return over the following eight months, and the adjusted R2 of regressing contemporaneous returns on average sentiment and disagreement is 0.33. 

Heterogeneous Expectations and Stock Market Cycles - with Pau Belda and Adrian Ifrim

We present a model of heterogeneous expectations. In the short run, agents learn about prices with different intensities due to their distinct levels of confidence regarding the signal-to-noise content of price news. Beliefs fluctuate around idiosyncratic means, which set agents’ different views about the asset’s long-run value. The model micro-founds the heterogeneous extrapolation and the persistent and procyclical disagreement present in survey data. The subjective belief system is embedded in an otherwise standard asset pricing framework, which can then quantitatively account for the dynamics of prices and trading. In the model, learning from prices leads to disagreement and trading, which reshuffles the distribution of wealth between lower- and higher-propensity-to-invest agents, affecting aggregate demand and prices. This feedback loop complements the expectations-price spiral typical of models with extrapolation, placing heterogeneity and trading as key drivers of price cycles.

Equity Market Participation, Corporate Leverage Choice, and Constrained Intermediaries - [Draft coming soon, Slides]

I show that domestic households’ equity investment is a key determinant of domestic firms' leverage choice. Economies with little household equity investment feature high corporate and financial sector leverage. I build a general equilibrium model of corporate leverage choice, featuring heterogeneous household portfolios and regulated intermediaries. Firms optimally trade off the tax advantage of corporate debt against the risk of costly default; Regulated intermediaries are exposed to systemic risk and may default. Accounting for household investment choices, a demand-driven theory of corporate leverage choice emerges. I show that in general equilibrium, Basel-style risk weights for corporate equity might increase the risk of bank defaults and can lead to an inefficiently low supply of equity financing. In the first-best equilibrium the social planner invests in equity on behalf of the households, in the second-best equilibrium financial intermediaries hold more corporate equity than in the market solution. Therefore, these results beg the question if regulators should be more lenient towards financial intermediaries that hold corporate equity as assets, as they have been in many non-US economies pre-Basel Accords.