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Teaching |
Market Design:
- "Design of Divisible Good Auctions," (with
M. Pycia and M. Weretka),
a new version coming soon,
pdf
Uniform price
and discriminatory price auctions are the most common formats for
selling divisible goods. For example, most Treasury departments use
one of the two designs to auction securities on a weekly basis.
Despite the central importance of these markets, little is known about
the superiority of either auction format in terms of revenue and
efficiency. This paper establishes such rankings and studies the
design of divisible goods more generally.
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"Small Double
Auctions,"
(with M. Weretka), revised November 2009.
-
"Dynamic Bilateral
Oligopoly,"
(with M. Weretka), revised July 2009.
The paper demonstrates that dynamic
bilateral market power qualitatively changes the equilibrium
properties of prices and dynamic trading strategies, compared to
existing competitive or non-competitive models. We discuss
implications for modeling market structures.
Finance:
The assumption of
price-taking behavior underlies many central results in asset pricing,
including the
no-arbitrage principle and full diversification of risk. It is now well
understood that many financial markets are thin: individual orders are
large relative to the daily volume of trade and, hence, induce price
impact. The competitive equilibrium asset-pricing models, such as CAPM or
consumption CAPM, are thus not suitable to
model markets with such large investors.
-
"Thin
Markets,"
(with M. Weretka), The New Palgrave Dictionary of Economics Online (2008), Steven
N. Durlauf and Lawrence E. Blume, Eds. Palgrave Macmillan.
link
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"Dynamic Thin Markets,"
(with
M. Weretka), revised August 2009, submitted,
pdf
Extensive
empirical research has shown that, in many markets, institutional
investors have a significant impact on prices and mitigate its adverse
effects through trading strategies.
This paper develops a
dynamic multiple-asset model of such thin markets in which the market
structure is one
of bilateral oligopoly. Traders' price impact derives solely from
decreasing marginal utility and not asymmetric information. Our
predictions match a number of
empirical facts that are
hard to reconcile with prior modeling approaches; e.g., optimal
execution of trade through breaking-up orders into blocks, asset price overshooting, stylized facts about
price volatility.
-
"Liquidity Concerns in Thin Financial Markets,"
(with
M.
Weretka), in progress.
Empirical evidence shows that assets are priced not only for their risk and
return but also liquidity. We model asset illiquidity as
resulting from traders' price impact. Thus, by contrast to the
existing literature, liquidity effects arise without appealing to
costs or asymmetric information. The interaction of uncertainty about
asset returns with price impact gives rise to equilibrium liquidity premia
that vary with time-to-maturity and are functions of the endogenously
derived price impact.
Other
work:
- "Quantile Maximization in Decision Theory,"
Forthcoming in
The Review of Economic Studies.
pdf
This paper
introduces a model of preferences in which an individual compares uncertain alternatives through a quantile of the
induced utility distributions. The choice rule of Quantile Maximization nests maxmin and maxmax but also captures less extreme preferences. Although largely ignored in
decision theory literature, quantiles are present in many applied areas of economics: econometrics (robust
estimation and quantile regression), measurement (population-based poverty lines, order
statistics), and others. The two key distinctive features of the model are robustness (to fat tails) and ordinality (robustness to the assumptions about risk attitudes).
One important class of decision problems with which Quantile
Maximization (but not Expected
Utility or any other
cardinal model) can formally deal is that where the alternatives
involve categorical, sometimes
referred to as
qualitative, variables. Taking preferences over acts as a primitive, I axiomatize Quantile Maximization in a
Savage setting.
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"Price Discrimination and Resale: A
Classroom Experiment,"
(with A. Basuchoudhary,
C. Metcalf, K. Pommerenke, D. H. Reiley, C. Rojas, and J. Stodder),
The Journal of Economic Education (2008), 39 (3),
229-244.
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