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PhD Students in the Job Market

 

2017-18

Mohsan Bilal | Tianyue Ruan | Fahad Saleh | Siddharth Vij | Di Wu
Mohsan Bilal
Mohsan Bilal
Dissertation Committee:  Xavier Gabaix (co-chair), Stijn Van Nieuwerburgh (co-chair), Alexi Savov, Itamar Drechsler
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            Zeroing In: Asset Pricing Near the Zero Lower Bound
ABSTRACT: Over the past decade, many central banks reduced interest rates to near-zero levels. I show that this has important implications for the dynamics of asset prices. In both the US and Japan, one such effect was that the correlation of stock and nominal bond returns decreased sharply as the short rate approached zero. To explain this fact, alongside the changing dynamics of stock and bond risks near the Zero Lower Bound (ZLB), I propose a New Keynesian framework with nominal rigidities. Specifically, I find that the probability that the ZLB binds in the near future represents a new source of macroeconomic risk. As this probability of hitting the ZLB increases, expected dividends drop and equity risk premia increase. This combination causes stock prices to fall. In contrast, long-term bond prices increase as investors expect future short rates and bond risk premia to drop. These opposite exposures to the risk of a binding ZLB constraint, sharply lower the stock-bond return correlation and turn it negative. I develop and calibrate a model that endogenously generates these observed changes while respecting unconditional macroeconomic and asset pricing moments.
 
Tianyue Ruan
Tianyue Ruan
Dissertation Committee: Robert Engle (co-chair), Robert Whitelaw (co-chair), Viral Acharya, Jennifer Carpenter, Philipp Schnabl
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            The Economics of Shadow Banking: Lessons from Surrogate Intermediaries in China
ABSTRACT: The scale of the shadow banking sector has grown tremendously in China in the last decade, developing in parallel with the rise of non-bank lenders in western economies. Chinese non-financial firms supply credit in the shadow banking sector, i.e., they behave as “surrogate intermediaries”. Using hand-collected data on the entrusted loans made by listed firms to other firms, this paper analyzes the causes and consequences of this phenomenon. Deposit funding declines and therefore constrains loans differentially across banks, as banks have to comply with the 75% loan-to-deposit ratio restriction. Using the pre-determined geographic variation in the presence of constrained banks, I find that there is more entrusted lending and this lending is more profitable in cities where traditional bank loans decline. Entrusted lenders also appear to rely on cash on hand rather than external finance to make the loans. Overall, my results suggest that this segment of shadow banking fills the regulation-induced gap of bank loan supply and is unlikely to undermine financial stability.
 
Fahad Saleh
Fahad Saleh
Dissertation Committee: Sundaram (Chair), Yermack (Chair), Engle, Hasbrouck, John, Philippon
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  Blockchain Without Waste: Proof-of-Stake
ABSTRACT: A blockchain constitutes a distributed ledger that records transactions across a network of agents. Blockchain’s value proposition requires that agents eventually agree on the ledger’s contents since payments possess risk otherwise. Restricted blockchains ensure this consensus by appointing a central authority to dictate payment validity. Permissionless blockchains (e.g. Bitcoin, Ethereum), however, admit no central authority and therefore face a non-trivial issue of inducing consensus endogenously. Nakamoto (2008) provided a temporary solution to the problem by invoking an economic mechanism known as Proof-of-Work (PoW). PoW, however, lacks sustainability, so, in recent years, a variety of alternatives have been proposed. This paper studies the most famous such alternative, Proof-of-Stake (PoS). I provide the first formal economic model of PoS and demonstrate that PoS induces consensus in equilibrium. My result arises because I provide the first endogenous blockchain coin pricing. Propagating disagreement introduces risk and thereby reduces blockchain coin value which implies that stake-holders face an implicit cost from delaying consensus. PoS randomly selects a stake-holder to update the blockchain and provides her an explicit monetary incentive, a “block reward,” for her service. In the event of disagreement, block rewards constitute a perverse incentive, but I demonstrate that restricting updating ability to large stake-holders induces an equilibrium in which consensus obtains as soon as possible. I also demonstrate that consensus obtains eventually almost surely in any equilibrium so long as the blockchain employs a modest block reward schedule. My work reveals the economic viability of permissioneless blockchains.
 
Siddharth Vij
Siddharth Vij
Dissertation Committee: Philipp Schnabl (Chair), Viral Acharya, Alexi Savov, David Yermack
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  Acquiring Failed Banks
ABSTRACT: Banks create value by issuing deposits and making loans, yet little is known about the relative importance of these two functions. I study this question in the setting of failed bank auctions. This allows me to obtain causal estimates by comparing outcomes for the winning bank to those of the second highest bidder. Consistent with a positive value effect from the acquisition, the winning bank experiences a large positive abnormal return upon announcement of the auction result. I show that this increased value is mainly due to deposits, not loans. After the acquisition, the winning bank sharply cuts lending to the failed bank's borrowers, including those who were not responsible for the bank's failure. However, the winning bank retains almost all of the failed bank's deposits, despite shutting down some of its branches. It does not channel these deposits into lending in other areas, indicating that the value of deposits is separate from their role in financing loans. Rather, it lowers deposit rates throughout its network, reflecting increased deposit market power. Overall, my results show that the deposit franchise is the main source of value in these acquisitions, and hence likely a principal source of bank value more broadly.
 

 

Di Wu
Di 'Woody' Wu
Dissertation Committee: Xavier Gabaix, Yakov Amihud, Kose John, Ralph Koijen
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  A Disaster Explanation for the Term Structure of Returns
ABSTRACT: This paper incorporates recovery of dividend in addition to the drop in dividend and the rise in inflation in the disaster framework, so that the cash flow effect of the disaster is contemporary for realized variance, transitory for dividends, and accumulative for nominal bonds. The new framework accounts for the following facts (1) the term structure of holding period return for nominal bonds is upward sloping while its Sharpe ratio is downward sloping, as found by Duffee (2010), (2) the term structure of holding period return for dividend strips and its Sharpe ratio are both downward sloping, as found by van Binsbergen, Brandt, and Koijen (2012), and (3) the Sharpe ratio of holding period return is significantly negative for one month variance forward, and close to zero for variance forward with maturity longer than two months, as found by Dew-Becker, Giglio, Le, and Rodriguez (2017). An international extension explains the fact that (4) either sorted by short rate or negative term premia, the carry trade using short term bonds is profitable while the carry trade with long term bonds is not, as found by Lustig, Stathopoulos, and Verdelhan (2017). The model suggests that the following new trading strategy should have high return: sorting countries by a linear combination of forward rates that measures the country’s exposure to the jump in inflation induced by the disaster, and trading a synthetic slope that longs/shorts two bonds with different maturity which is directly exposed to this jump. The Sharpe ratio is 1.34, consistent with the notion that asset highly exposed to disaster risk earns high return.