We develop an optimal contracting model in which limited enforcement of financial contracts generates dispersion in marginal products of capital across firms. We show that the optimal contract can be implemented using state-contingent transfers and a simple collateral constraint that limits the...

How does firm dynamically adjust its capital and debt structure in response to interest rate risk? Using micro-data, I find that bond spread increases more than loan spread and firms rebalance towards bank loans and away from corporate bonds in response to unexpected monetary tightening. I...

VCs prefer secrecy when searching for targets. As a result, only the investments in viable startups are disclosed but the failed ones are discarded silently. We extend the standard preemption game to explain the efficiency loss and the individual rationale of doing so. We show that secrecy...

We empirically show across several broad asset classes that sectoral wealth shares do not positively correlate with their risk premia---a first-order prediction of canonical equilibrium models. We then analyze the roles mean-variance and hedging demand play in accounting for sectoral shifts...

I develop a new method that structures financial market data to forecast economic outcomes. I use it to study the IT sector's transition to its long-run share in the US economy. The method uses a model which links economy-wide growth with IT's market valuation to match transition data on...

Persistent interest rate differentials account for much of the currency carry trade profitability. "Commodity currencies" offer high interest rates on average, while countries that export finished goods tend to have low interest rates. We develop a general equilibrium model of international...

Exchange rate volatility falls after a trade deal, driven by a decline in the systematic component of risk. The average trade deal increases trade by 50 percent over five years, reducing systematic risk by a third of a standard deviation across countries. We examine this connection in an...

Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. "Commodity currencies'' tend to have high interest rates while low interest rate currencies belong to exporters of finished goods. This pattern arises in a...