Research

Abstract. I investigate asset price dynamics and market efficiency in an equilibrium model where arbitrageurs with limited risk-bearing capacity face endogenous price impact costs while exploiting price discrepancies across segmented markets. The model identifies two arbitrage paradigms: 'Risk-On' and 'Risk-Off.' In a Risk-On economy, arbitrageurs with higher risk-bearing capacity accelerate trading for liquidity provision, adjusting their target positions against the aggregate arbitrage inventory and overcorrecting price gaps with a shorter half-life of spreads. In a Risk-Off economy, arbitrageurs with lower risk-bearing capacity decelerate trading, aligning with the aggregate arbitrage inventory and undercorrecting price gaps with a longer half-life. The speed of competitive arbitrage may exceed the socially efficient rate due to arbitrageurs' short-term inventory risk minimization, while market liquidity shrinks. A redistribution policy aimed at inventory neutrality incentivizes long-term liquidity provision and reduces arbitrage gaps. 

Abstract. I analyze asset price dynamics in a general equilibrium model with endogenous price impact costs and information asymmetry about redistributive liquidity shocks. Without information asymmetry, low-cost traders exert market power to trade with high-cost traders, leading to price deviations from the fundamental value and a slow recovery with overshooting. Asymmetric trading costs generate excess volatility, short-term reversal, and longer-term momentum. Under information asymmetry, informed traders shift trades toward uninformed traders (substitution effect), while uninformed traders demand higher risk premiums (adverse selection effect). These two effects shape the endogenous distribution of perceived risk between informed and uninformed traders, potentially reducing the price effects of trading costs. Information asymmetry amplifies volatility when informed traders face low trading costs but dampens it when their trading costs are high. It also increases short-term reversal and weakens longer-term momentum.

Abstract. This paper examines how reallocation costs in real capital transactions affect resource misallocation and total factor productivity in a two-sector economy with fixed aggregate capital. Total productivity fluctuates due to sectoral productivity shocks and the gradual adjustment of real capital in response. Higher reallocation costs lead to more persistent misallocation and greater productivity volatility, even after productivity differences between sectors have diminished. Asymmetric reallocation costs further intensify misallocation, particularly when the more productive sector faces greater frictions, causing capital to remain in the less productive sector, thereby reducing overall productivity. Reducing reallocation frictions in sectors with higher productivity shocks enhances allocative efficiency and raises total productivity.

Abstract. I examine the role of futures contracts in a portfolio choice problem where an active investor faces trading costs when rebalancing between a bond and an illiquid equity with alpha. Futures contracts are introduced as a liquid alternative to the equity but involve basis risk and rollover costs. The optimal overlay strategy allows the investor to separate the equity portfolio's market-related performance from its alpha performance. The results show that the trading size and frequency of the equity position decrease when the basis risk and rollover costs of futures contracts are low. Furthermore, the optimal overlay strategy is state-dependent: in a high-alpha state, the investor increases the equity proportion even with low basis risk, while in a low-alpha state, the investor shifts towards increasing the overlay position.

Abstract. This paper examines the optimal allocation of effort between short-term and long-term tasks and the design of incentive-compatible contracts in a multitasking principal-agent framework. As the agent views tasks as strategic substitutes, task arbitrage arises. To manage this, the principal designs contracts that incentivize the agent to view tasks as complementary. If only short-term tasks are present, the contract addresses static task arbitrage, potentially resulting in more back-loaded and volatile compensation. If both task types coexist, the agent exploits persistent information rents from the long-term task, and the optimal contract exhibits dynamic complementarity to manage dynamic task arbitrage. Compensation adjusts according to the agent’s information rent and can be either front-loaded or back-loaded.

Abstract. (soon)