Working Papers

Empirical Asset Pricing & International Finance

ETF Arbitrage and International Diversification (with Ilias Filippou and Hari Rozental), available on SSRN, accepted for presentation at the AFA 2022 (Boston), presented at FMA 2019, CICF 2019, Finance Forum 2019, Fulcrum Asset Management, Hebrew University of Jerusalem 2019. Media Coverage:, quantpedia,, Semi-finalist for Best Paper Award in Investments, FMA 2019, R&R

We show that investment decisions of country ETF market participants measured by ETF market order imbalances are driven by global shocks, rather than local risks. We argue that the ETF price discovery mechanism is one of the key channels through which global shocks propagate to local economies leading to increased return correlation with the U.S. market, limiting the benefits from international diversification. ETF order imbalance is predictive of the underlying MSCI index returns. The staggered introduction of country ETFs leads to positive shocks to return correlations between underlying foreign and U.S. market indices. We find that countries with stronger ETF price discovery have a higher comovement with the U.S. market lending further support for the proposed mechanism.

U.S. Populism and Currency Risk Premia, (with Ilias Filippou, My T. Nguyen and Mark P. Taylor), (available on SSRN, presented at the EEA 2023, AFA 2021 poster session, Midwest Finance Conference 2021, FMA 2020, 2nd Frontiers of Factor Investing Conference 2020.

We develop a novel measure of media attention to U.S. populism by extending an existing populist dictionary to capture the new form of populism. Our Aggregate Populist Rhetoric (APR) Index spikes around well-known events that spur populist sentiment and exposure to APR is linked to financial globalization. We show that the APR Index is priced in the cross-section of currency excess returns. Currencies that perform well (badly) when attention to U.S. populism is high yield low (high) expected excess returns. Investors require a risk premium for holding currencies that underperform in times of rising attention to U.S. populism. Financial segmentation explains why friction to globalization in the form of populism affects the cross-section of currency returns. 

New versionThe Signal in the Noise: Trump Tweets and the Currency Market (with Ilias Filippou, My T. Nguyen, and Ganesh Viswanath Natraj) is now available on SSRN, presented at the AFA 2022 poster session,  34th Australian Finance&Banking Conference, WBS Summary

In this paper, we conduct a textual analysis of Trump tweets. Our method extracts the signal from the noise, by identifying the subset of tweets that contain information on macroeconomic policy or trade content. Informative tweets result in a USD appreciation and a decline in intraday volatility, reflecting Trump's optimistic views on the U.S. economy. These effects persist after controlling for macroeconomic announcements. We rationalize our findings within a model of Bayesian traders that interpret Trump tweets as a public signal in the FX market. Currency returns are driven by a bias between the public signal and speculators' expectations.

New version: Spreading Positions and the Commodity Futures Risk Premium, (with Yujing Gong and Gi Kim), presented at the EFA 2023 poster session, APAD 2023, CICF 2023, AFA 2020 poster session, WFA 2020, CFTC, JPMCC 2021, 28th Finance Forum, Warwick Business School Seminar, LSE Systemic Risk Centre Seminar, KRX Paper award APAD 2023, available on SSRN.

This paper investigates the impact of trading on the commodity futures risk premium. We focus on intra-commodity spreading positions and study its asset pricing implications on the cross-section of commodity futures returns. We provide evidence that spreaders arise as counterparties to index traders and spreading positions scaled by open interest (SP) negatively predict commodity futures excess returns associated with index pressure. A battery of empirical tests shows that SP help separate commodities that trade based on economic fundamentals from commodities that are subject to market frictions introduced via commodity index investments. We propose an SP factor, a long-short portfolio based on SP that is priced in the commodity futures market, even after controlling for well-known factors, and is robust to accounting for omitted variable biases and measurement errors.

Central Bank Reserves and Currency Volatility (with Alex Ferreira and Joao Mainente), available on SSRN.

We investigate the effects of sterilized Central Bank interventions designed to smooth exchange rate volatility but not aimed at a particular trend level. We present a model in which the intervention flow is a non-linear mapping of the market order flow. Simulations show that small daily drifts, precautionary-led accumulation in the case of the Bank of England, and commodity-driven in the Central Bank of Brazil, lead to major impacts on both the stock of foreign reserves and the distribution of currency returns. The likelihood of a major impact increases with the Central Bank's inability/unwillingness to adopt a neutral policy regarding the drifts. 

Risk-Corrected Probabilities of a Binary Event (with Alex Ferreira and Yujing Gong), is now available on SSRN, presented at the AFBC 2021, CFE 2021, European FMA 2022, EFMA 2022, FMA 2022, Semi-finalist for Best Paper in Options & Derivatives in 2022 FMA Annual Meeting.

We obtain risk-neutral probabilities of the Brexit referendum using data from both the options and prediction markets. We then provide a risk-corrected measure of these probabilities using both non-parametric and parametric methods. While former correction marginally changes the risk-neutral probability, the effect of the latter depends on relative wealth calibration and risk preferences. We estimate subjective Brexit probabilities from past opinion polls and provide daily estimates of voting intention to leave from the BES survey. By comparing the subjective probabilities with our risk-corrected measures, our results show that both FX option and prediction market participants are likely to reveal moderate risk-seeking preferences before the Brexit referendum. 

 New paper: Investment Completion Risk and Stock Returns (with Ajay Venkataraman and Rory Mullen), accepted for presentation at the AFBC 2023.

This paper examines the impact of investment completion risk on firm returns. Utilizing a comprehensive dataset from the atomic energy industry, we analyze reactor and firm characteristics to formalize the relationship between completion risk, investment cost, and firm returns. Our findings demonstrate a statistically significant association, as a 1\% increase in completion risk corresponds to an annual increase of 36 basis points in returns controlling for investment costs. Completion risk exerts a more prominent effect on firms that use more complex technologies with higher construction costs. We also investigate the impact of the Three Mile Island accident, which amplified completion risk and heightened investor awareness of the risks related to complex technologies. Completion risk is a significant and priced risk factor, particularly for firms that invest in complex technologies. 

Market Microstructure

News and Trading After Hours (with Bei Cui), accepted for presentation at the AFBC 2023, available on SSRN!

We explore after-hours trading (AHT) in U.S. equity markets. We collect a large set of news releases during AHT and document their effect on AHT activity and market quality. There are three major triggers of AHT. After-hours corporate news catches the attention of retail participants. Zero-commission platforms facilitate a reaction to positive after-hours corporate news that leads to an increase in after-hours trades and return volatility. Insider sales are more likely to be announced after markets close allowing faster correction of company overvaluations. Index rebalancing and reconstitutions during AHT lead to large liquidity-driven trades contributing to the negative CAPM slope. 

Liquidity and Price Informativeness of Options: Evidence from Extended Trading Hours (with Liangyi Mu),  (available upon request), R&R

This paper explores the trading dynamics of the options market during extended trading hours. In extended trading hours, the options market is characterized by low liquidity, decreased trading activities, and yet an increased likelihood of informed trading. The introduction of extended trading hours improves overall market liquidity on the following trading day, as reflected by a reduction in the quoted and effective bid-ask spreads, not just for index options but also for their underlying constituents. The improvement of liquidity is due to the timely incorporation of overnight news into option prices during the extended trading hours. Moreover, option prices during extended trading hours are informative for the index level and realized volatility in the subsequent regular trading hours.

Household Finance

Life-Cycle Asset Allocation of Ambiguity Averse Investors: Habit Formation and Term Life Insurance, (with Zhezhi Hu and Nalan Gulpinar), presented at the NFA 2018, University of Exeter Finance Seminar 2018.

This paper studies a life-cycle asset allocation problem introducing habit formation and life insurance. We consider an investor who is ambiguity-averse toward stock returns. Our findings are: (i) fraction of wealth allocated in the stock market is negatively correlated with the degree of ambiguity aversion following a hump-shaped prole over the life-cycle in line with the Survey of Consumer Finances data, (ii) demand for term life insurance is monotonically decreasing in habit level, and a relatively low level of habit is necessary to match the insurance data. Subjective survival beliefs and borrowing options also matter for investors' life-cycle insurance decisions.

Life-cycle Housing Problem with Time-varying Housing Risk Premium (with Zhezhi Hu and Nalan Gulpinar), (available upon request).

We study a life-cycle housing problem with three decisions: renting, owning, and renting out a property conditional on homeownership. A household with recursive preferences derives utility from both non-durable consumption and housing services and can choose to obtain rental income to sustain consumption. We allow for time variation in the housing risk premium, and its predictability by the rent-price ratio in residential real estate. The model predicts that the option to generate rental income increases the household leverage in the early stages of life, while housing risk premium predictability generates higher homeownership after retirement in line with data.