The main goal of my research agenda is to analyze, both theoretically and empirically, the impact of
important (yet often ignored) trading frictions on the process of price formation in domestic
and international financial markets (for equity, government and corporate bonds, currency,
and real estate).
This effort is motivated by the observation that over the last two decades, many of
these markets have been experiencing high volatility, price bubbles, sudden, severe (and often
deemed “excessive”) downward price movements, drying liquidity, rapid reversals of capital flows,
and contagious propagation of shocks across stocks, bonds, and currencies – as recently as in correspondence
with the global financial crisis of the last two years. These phenomena are pervasive and difficult
to reconcile with standard asset pricing theory. Nonetheless, because of their significant economic,
financial, and social implications, a greater understanding of these phenomena is of increasing,
even urgent, importance to academics, practitioners, and policy-makers.
Against this backdrop, my research explores how the introduction of realistic financial frictions
– such as price manipulation, information asymmetry and heterogeneity, imperfect competition among agents,
and endowment shocks – or features of human behavior – such as loss aversion, risk seeking in losses,
and short-termism – into models of rational and strategic trading may help explain these phenomena.
Its main contribution lies in identifying novel theoretical implications of these considerations,
and providing novel evidence of their empirical relevance in three areas:
(i) Information & Prices;
(ii) Financial Crises & Contagion;
(iii) Foreign Exchange.
In particular, insights from my work shed light on the determinants of market liquidity, firms’ financial
policies, financial crises and contagion, and the effectiveness of Central Bank interventions.
In this three-part section you will find a collection of my published papers, working papers,
and permanent working papers on these topics.