Research

Abstract. I study the equilibrium speed of arbitrage between assets with identical cash flows when hedgers and arbitrageurs face trading costs. In the symmetric baseline, inventory adjusts at a speed between the groups’ individual trading speeds at the same equilibrium prices. The spread compensates arbitrageurs for trading costs and inventory risk. The spread’s response to demand shocks determines inventory risk and hence optimal trades. Lower arbitrageur trading costs can increase the immediate trading response to hedging demand yet slow inventory adjustment by reducing spread volatility. Arbitrageur composition can change prices and trading even when aggregate trading and risk-bearing capacities are unchanged.

Abstract. I study how uncertainty about the source of price pressure affects risk transfer when portfolio adjustment is costly. Uninformed investors infer hedging demand from prices and dividends, while expected future holdings affect current prices and return risk. More precise common signals can increase risk absorption over time while reducing return risk and slowing adjustment toward a given desired position. With imprecise signals, lower trading costs can increase the compensation required for informed investors’ nontraded-income risk through changes in the covariance between income and asset returns. The initial price decline after a hedging-demand shock can therefore deepen despite greater risk absorption. When learning relies on prices and dividends alone, the relative persistence of inference errors and hedging demand determines whether measured market inelasticity rises, falls, or remains constant across observation horizons. Sharing signals among uninformed investors can raise average portfolio values for informed and uninformed investors while reducing the value of an initially advantaged uninformed group.

Abstract. I study how firms’ capital reallocation affects market inelasticity and investor portfolios when trading is costly. Capital reallocation can lower initial and average price impact while prolonging investor positions, even when individual adjustment speeds are unchanged. By shifting a fixed stock of capital across sectors, firms change both claim supply and the portfolios investors wish to hold. The supply response reduces price pressure but sustains the additional holdings. Reallocation also changes the risk of an additional holding through price news and the value of future trades. A larger demand-induced price response can therefore coexist with lower holding risk. The allocation of capital and claims also affects risk compensation: allocations with the same current price and conditional return variance can have different expected returns.

Abstract. I study how reallocation costs affect productivity risk and asset prices when firms trade a fixed stock of capital between two sectors. Capital in the more productive sector raises output but exposes shareholders to losses if its productivity advantage reverses. Shareholders' valuation of these losses enters firms' capital demand. Lower costs speed recovery after a reversal but induce firms to hold more capital in the more productive sector. This increase in exposure raises long-run productivity volatility even as lower costs improve average productivity and welfare. Cheaper future adjustment reduces the equity premium at a given nonzero exposure to reversals. Firms' greater exposure raises the premium on average. With more sectors and local productivity exchanges, capital distributions that produce the same output can have different risks and household welfare. 

Abstract. I study how futures maturity and rollover costs affect investment in stocks earning alpha. An investor jointly chooses stock holdings and futures hedges across maturities when trading is costly. The stock investment can outlast the futures hedge. Portfolios with the same current stock holding and total futures exposure can require different future hedge trades. A larger short position in a later-expiring contract can increase stock holdings when subsequent optimal trades maintain a larger hedge. A later-expiring position can instead replace future hedge trades, reducing trading costs without changing stock investment. Rollover fees affect current stock trading through the future cost of hedging an additional stock position. Costless outright futures trading eliminates the effect of initial maturity allocation on stock investment.

Abstract. I study how caps and floors on the price-dividend ratio affect risk sharing and expected returns when investors differ in risk aversion. Binding limits restrict stock holdings and change the allocation of consumption risk. Anticipated restrictions affect current prices and required returns before a bound is reached. At a given consumption allocation, raising the floor lowers the equity premium before and after rationing begins. Tightening the cap can instead lower the premium before rationing but raise the premium once holdings are constrained. Before rationing, tighter bounds reduce return exposure to dividend news; after rationing begins, changes in the bounds affect the compensation required by the marginal investor. The equity premium can jump downward at the floor and upward at the cap while prices and return volatility remain continuous. Within a binding region, the risk-free rate and equity premium can vary across consumption allocations even when the price-dividend ratio, expected total stock return, and return volatility are unchanged.