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Report
Asset Pricing with Cohort-Based Trading in MBS Markets
Agency MBSs with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to-be-announced (TBA) contracts. This parallel trading environment generates distinctive effects on MBS pricing and trading: (1) Although cheapest-to-deliver (CTD) issues are present in TBA trading and absent from SP trading by design, MBS heterogeneity associated with CTD discounts affects SP returns positively, with the effect stronger for lower-value SPs; (2) High selling pressure amplifies the effects of MBS heterogeneity on SP returns; (3) Greater MBS ...
Working Paper
Elastic attention, risk sharing, and international comovements
In this paper we examine the effects of elastic information-processing capacity (or optimal inattention) proposed in Sims (2010) on international consumption and income correlations in a tractable small open economy (SOE) model with exogenous income processes. We find that in the presence of capital mobility in financial markets, optimal inattention due to fixed information-processing cost lowers the international consumption correlations by generating heterogeneous consumption adjustments to income shocks across countries facing different macroeconomic uncertainty. In addition, we show that ...
Working Paper
Government Connections and Financial Constraints: Evidence from a Large Representative Sample of Chinese Firms
We examine the role of firms' government connections, defined by government intervention in CEO appointment and the status of state ownership, in determining the severity of financial constraints faced by Chinese firms. We demonstrate that government connections are associated with substantially less severe financial constraints (i.e., less reliance on internal cash flows to fund investment), and that the sensitivity of investment to internal cash flows is higher for firms that report greater obstacles to obtaining external funds. We also find that those large non-state firms with weak ...