Knowledge that Transforms

This paper quantifies how investors’ portfolio demand responds to price changes at long horizons versus short horizons. Using investor trades – changes in portfolios – at different horizons, I first present reduced-form evidence that elasticities increase significantly over time. I then propose a dynamic demand system via a parsimonious partial-adjustment model that recovers the full term structure of elasticities while mitigating long-horizon identification challenges. The estimates imply that price impacts are three times larger at quarterly horizons than in the long-run equilibrium. The model produces a novel, stock-level measure of long-term reversal that avoids the noise of long-horizon return regressions.

How do bank networks facilitate information flows that shape market outcomes? Using international banks’ advisory activities in corporate takeovers as their source of private information, we show in supervisory data that banks with closer ties to the target, but not the acquirer, advisor trade profitably in the target’s stock prior to the deal announcement. This trading behavior is associated with a higher premium paid without compromising deal success. As connected banks’ incentives are aligned only with target shareholders’ interests, which are represented by the target advisor, our evidence suggests that economic incentives determine which banks share information and with whom.

We examine the effects of mandatory board gender quotas on unregulated firms that are connected to regulated ones via interlocking directorates. After the introduction of quotas, connected firms significantly increase their share of female directors relative to similar unconnected firms. The spillover effects are substantial — at least as large as the direct effects on regulated firms, challenging previous claims that quotas have no broader impact on women in business. Our results suggest that quotas indirectly broaden the supply of candidates for connected firms, along dimensions that include, but are not limited to, gender.

We study how U.S. dollar fluctuations transmit through domestic supply chains in emerging markets. Large firms borrow in foreign currency and extend trade credit to domestic partners, exposing the supply chain to exchange rate risk. We develop a model where financially constrained suppliers pass through shocks to buyers, while unconstrained firms absorb them. Using quarterly firm-level data from 19 emerging markets, we provide empirical evidence consistent with the model’s predictions. We find that even highly exposed firms reduce trade credit only modestly following a depreciation, while accepting large profit losses, suggesting that firm-to-firm credit relationships partially shield downstream firms from financial shocks.