Published and Forthcoming Papers

Prediction Markets: Alternative Mechanisms for Complex Environments with Few Traders (With PJ Healy, John Ledyard, and Sera Linardi),  Management Science, November 2010

1. Abstract: Double auction prediction markets have proven successful in large-scale applications such as elections and sporting events. Consequently, several large corporations have adopted these markets for smaller-scale
   internal applications where information may be complex and the number of traders is small. Using laboratory
   experiments, we test the performance of the double auction in complex environments with few traders and
   compare it to three alternative mechanisms. When information is complex we find that an iterated poll (or
   Delphi method) outperforms the double auction mechanism. We present five behavioral observations that may
   explain why the poll performs better in these settings.

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Financial Expertise as an Arms Race (with Vincent Glode and Rick Green), Forthcoming, Journal of Finance, October 2012

1. Abstract:
   We show that firms intermediating trade have incentives to overinvest in financial expertise, and that these investments can be destabilizing. Financial expertise in our model improves firms' ability to estimate value when trading a security. It creates adverse selection, which under normal circumstances works to the advantage of the expert. It deters opportunistic bargaining by counterparties. That advantage is neutralized in equilibrium, however, by offsetting investments competitors make. Moreover, when volatility rises the adverse selection created by expertise triggers breakdowns in liquidity, destroying gains to trade and thus the benefits that firms hope to gain through high levels of expertise.
   

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Trading Complex Assets (with Bruce Carlin and Shimon Kogan), Forthcoming, Journal of Finance

1. Abstract:
   We perform an experimental study to assess the effect of complexity on asset trading. We find that higher complexity leads to increased price volatility, lower liquidity, and decreased trade efficiency especially when repeated bargaining takes place. However, the channel through which complexity acts is not simply due to the added noise induced by estimation error. Rather, complexity alters the bidding strategies used by traders, making them more reticent to trade, even when we control for estimation error across treatments. As such, it appears that adverse selection plays an important role in explaining the trading abnormalities caused by complexity.
   

 

 

Working Papers

 

The Pricing of IPO Services and Issues: Theory and Estimation (with Ari Kang)

Compensating Financial Experts (with Vincent Glode)

 

Agency Costs, Information, and the Structure of Corporate Debt Covenants (with Malcolm Wardlaw)

 

1. Complex Securities and Underwriter Reputation: Do Reputable Underwriters Produce Better Securities? (with John Griffin and Alessio Saretto)

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   Bargaining with Asymmetric Costs for Information (with Vincent Glode)

    

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Work in Progress

Bank Failures and Regulatory Incentives: A Structural Estimation (with Ari Kang and Malcolm Wardlaw)