Working Papers
with Boris Vallée and Alexey Vasilenko
A long time series of faculty wages at public and private four-year institutions in the U.S. and Canada reveals a widening dispersion in pay across disciplines, primarily driven by economics and business - and especially finance. We investigate the role of student earnings, and find that the heterogeneity in the elasticity of faculty pay to student earnings across fields plays a significant role in driving pay differentials. Fields that are more scalable and profitable -- measured by student-to-faculty ratios and university revenues -- and with higher frictions in PhD supply exhibit markedly higher elasticity. Our findings suggest that increasing competition within fields, fueled by industry spillovers, is the primary mechanism underlying the widening dispersion in faculty compensation.
Previous version: The Pay of Finance Professors (AFA 2024)
with Laurent Calvet, Gordon Liao and Boris Vallée
We investigate the impact of household preferences on option prices through the demand for securities with non-linear payoffs. We estimate a structural model in which household demand for products embedding the sale of a put option varies with volatility. Intermediaries optimize the headline rate these products offer, while imperfectly hedging their issuance. We find that when households neglect risk, their demand for short-put products exerts downward pressure on option prices at strikes below 100\%. As a result, when volatility increases, household higher demand for short-put products attenuates the increase of volatility prices. These results speak to the equilibrium effects of the retail demand for innovative securities.
Selected for funding by the Office of Financial Research & National Science Foundation grant 2312331 - NBER Market Frictions and Financial Risks Initiative
Taxing Bank Leverage: The Effects on Bank Portfolio Allocation, 2023 R&R at Review of Financial Studies
with Thomas Kick and Steven Ongena
We investigate whether fiscal reforms that reduce banks' incentives to leverage also affect banks' portfolio allocation.
Publications
with Purnoor Tak
We study how bank advertising practices contribute to racial disparities in financial markets by steering minorities toward inferior products. We exploit a regulatory change that incentivizes deposit collection at the Freedman's Savings Bank, the first institution to collect deposits from African Americans post-Emancipation, by facilitating misuse of depositor funds. After deregulation, advertising volume rises, particularly in African American newspapers, leading to increased deposits from Black depositors despite the bank's insolvency. We identify persuasion as a key mechanism; prescriptive stereotypes and false claims likely amplify advertising's impact on African Americans, exacerbating historically large depositor losses after the bank's collapse.
Internet Appendix, Reply to Stein and Yannelis (2021)
Code and Data: Data, Data Construction Programs, Result Programs, Run_all
Can Security Design Foster Household Risk-Taking? 2023, Journal of Finance 78(4)
with Laurent Calvet, Paolo Sodini, and Boris Vallée
This paper shows that securities with nonlinear payoff designs can foster household risk-taking. We demonstrate this effect by exploiting the introduction of capital guarantee products in Sweden between 2002 and 2007. Their fast and broad adoption is associated with an increase in expected financial portfolio returns. The effect is especially strong for households with low-risk appetite ex ante. These empirical facts are consistent with a life-cycle model in which households have pessimistic beliefs or preferences combining loss aversion and narrow framing. Our results illustrate how security design can mitigate behavioural biases to increase mean household portfolio returns.
with Boris Vallée
To study the role of talent in finance workers' pay, we exploit a special feature of the French higher education system. Wage returns to talent have been significantly higher and have risen faster in finance since the 1980s than in other sectors. Both wage returns to project size and the elasticity of project size to talent are also higher in this industry. Last, the share of performance pay varies more for talent in finance. These findings are supportive of finance wages reflecting the competitive assignment of talent in an industry that exhibits a high complementarity between talent and scale.
Bank Branch Supply, Financial Inclusion and Wealth Accumulation 2019, Review of Financial Studies 32(12)
with Adrien Matray
This paper studies the impact of financial inclusion on wealth accumulation. Exploiting the US interstate branching deregulation between 1994 and 2005, we find that an exogenous expansion of bank branches increases low-income household financial inclusion. We then show that financial inclusion fosters household wealth accumulation. Relative to their unbanked counterparts, banked households accumulate assets in interest bearing accounts, invest more in durable assets such as vehicles, have a better access to debt, and have a lower probability of facing financial strain. The results suggest that promoting financial inclusion for low-income populations can improve household wealth accumulation and financial security.
Catering to Investors through Security Design: Headline Rate and Complexity 2017, Quartlery Journal of Economics 132(3)
with Boris Vallée
This paper investigates the rationale for issuing complex securities to retail investors. We focus on a large market of investment products targeted exclusively at households: retail-structured products in Europe. We hypothesize that banks strategically use product complexity to cater to yield-seeking households by making product returns more salient and shrouding risk. We find four empirical results consistent with this view. First, we show that structured products with complex payoff formulas offer higher headline rates, and that they more frequently expose investors to a complete loss of their investment. We then document that banks are more inclined to issue high-headline-rate and more complex products in low-rate environments. Finally, we find that high-headline-rate and more complex products are more profitable for banks, and that their ex post performance is lower.
Selected Work in Progress
Who Benefits from Bank Charters? Evidence from 19th Century Canada
with Marianne Volle